Iran's main legislative arbitration body on Saturday ruled the country could use foreign bank loans, side-stepping objections that such financing ran against the principles of Islamic law.
Parliament approved international financing earlier this year but the Guardian Council, Iran's constitutional watchdog, promptly ruled that loans from foreign banks were associated with usury and were un-Islamic.
That verdict sent shivers through the investment community as the Islamic Republic's fragile banking system is unable to support booming sectors such as car making and shipping.
But the Expediency Council, which arbitrates in disputes between parliament and the council, ruled in favour of the parliamentarians.
"There are no more legal problems in using foreign financing and the government is allowed to use it," said Mohammad Mehdi Mofatteh, spokesman of parliament's budget committee.
The Expediency Council sent a fax to Reuters confirming it had declared foreign loans as legal. "All this uncertainty and delay was itself harming the economy," said Wadah Al-Taha, head of research at National Bank of Abu Dhabi in the United Arab Emirates where many foreign banks have there regional headquarters.
"From the point of view of the moderate Muslim there is nothing wrong with borrowing on interest if there are no alternatives," he added.
HSBC, BNP Paribas, Deutsche Bank, Commerzbank, Standard Chartered and the Royal Bank of Scotland have all been involved in funding projects in Iran.
They had all been operating in Iran unimpeded before parliament and the Guardian Council fell out over the issue.