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India and Iran have resolved their problem over payments, he said, which was triggered at end-December when the Reserve Bank of Indian scrapped a long-standing regional clearing house mechanism under US pressure.

India is Iran's second-biggest customer after China and Iran provides about 12 percent of the Asian country's oil demand.

Washington wants to isolate Tehran over its nuclear programme, which it believes Iran is using to develop weapons and although there is no international ban against buying Iranian crude, sanctions make financing difficult.

A new mechanism for payments through Turkey's Halkbank put in place recently has allowed Indian refiners to start payments.

P.K. Goyal, head of finance at Indian Oil Corp, the country's largest refiner, said Indian firms have opened an account with Union Bank of India, which is paying in euros to Turkey's Halkbank.

State-run Halkbank is then transferring funds to National Iranian Oil Co's (NIOC) account.

Mukherjee said the mechanism was confidential.

Indian refiners are hoping the first payments will enable them to receive supplies from Iran after concerns shipments would be halted pushed them to buy from alternative suppliers, including three million barrels for August from top exporter Saudi Arabia.

Iran has received one billion euros ($1.4 billion) from India in the last 10 days, an Iranian official said on Monday.

As debts mounted, Iran refused to issue Indian refiners with firm crude supply plans for August. Mukherjee said Iran had never threatened to stop supplies.