President Barack Obama had come under strong pressure not to allow Hamid Abutalebi into the country to take up his position in New York. White House spokesman Jay Carney said the United Nations and Iran had been told "that we will not issue a visa to Mr. Abutalebi." He gave no further explanation.
U.S. law allows the government to bar U.N. diplomats who are considered national security threats, but Obama's potentially precedent-setting step could open the United States to criticism that it is using its position as host nation improperly.
The U.S. government objects to Abutalebi because of his suspected participation in a Muslim student group that seized the embassy in November 1979 and held 52 Americans hostage for 444 days.
The veteran diplomat has acknowledged that he acted as an interpreter for the militants who held the hostages.
Obama's decision came days after negotiators from Iran, the United States and five other world powers met in Vienna for delicate negotiations seeking to curb Iran's nuclear program.
A spokesman for Iran's mission to the United Nations said the White House decision was unfortunate and may violate international law.
"It is a regrettable decision by the U.S. Administration which is in contravention of international law, the obligation of the host country and the inherent right of sovereign member states to designate their representatives to the United Nations," spokesman Hamid Babaei said in a statement.
But an Iranian official said he did not expect the dispute to affect the nuclear negotiations.
Any official response would be up to the Iranian Foreign Ministry, but the U.S. decision "will have no impact on our talks with the P5+1," the official told Reuters.
DIVIDED CONGRESS UNITED ON IRAN
The United Nations said it had no comment at this time on the U.S. decision.
After hearing about anger from the former hostages' over Abutalebi, members of Congress jumped to pass legislation banning him, seeing the issue as a chance to look tough on Iran weeks after a new sanctions bill stalled in the Senate.
Unusually, the legislation passed unanimously in both chambers of the normally divided Congress this week.
Many members of Congress, even Obama's fellow Democrats, are deeply skeptical about Iran, despite the administration's efforts to ease tensions with the long-time U.S. adversary. They had made clear they considered Iran's selection of Abutalebi as a rebuke of the United States.
"I appreciate the president doing the right thing and barring this acknowledged terrorist from coming into the country," Texas Republican Senator Ted Cruz, who sponsored the bill in the Senate, said on Fox News.
U.S. Senator Charles Schumer, a New York Democrat, said in a statement: "Hamid Abutalebi's nomination would have been a slap at all American victims of terrorism, not just those taken hostage in 1979. We're glad the Obama Administration made this choice, and Iran should stop playing these games."
The White House is still reviewing the legislation, which would need Obama's signature to become law.
"We concur with the Congress and share the intent of the bill," Carney said.
Some officials said Obama's action raised concerns.
A congressional staffer said it could set a precedent for U.S. politicians or interest groups to pressure presidents to deny visas for political reasons. It could also prompt visa fights in other countries where international organizations have headquarters, according to the staffer, who requested anonymity to speak freely on the controversial issue.