Iran's supreme leader Ayatollah Ali Khamenei told the government Thursday to adopt an "economy of resistance" to confront crippling sanctions slapped by the West on Tehran over its nuclear drive.

"The arrogant powers are pulling their weight to force Iran to back down (on its stances) and the government should invalidate these illusions by using the nation's full potentials," Khamenei said.

He called for an "economy of resistance" to confront a slew of Western oil and financial sanctions, saying this "is the only way to pursue progress in the country."

"In this kind of economy the nation's progress is preserved and vulnerability of the economy against the enemies plots is decreased," Khamenei said during a meeting with cabinet members and President Mahmoud Ahmadinejad.

During his speech Khamenei did not specifically mentioned sanctions nor Iran's controversial nuclear drive.

But his comments comes as several Iranian officials, who had long minimised the effect on the sanctions, acknowledged in recent weeks that the punitive measures have had a negative impact on the country's economy.

Severe banking sanctions imposed on Iran since 2010 have slowed industrial activity, reduced foreign investment, soared inflation to more than 20 percent and led to a shortage of foreign currency.

The situation has been aggravated in recent weeks with an oil embargo that so far has caused Iranian oil exports -- which provide the country with most of its foreign exchange resources -- to drop by around 50 percent.

The embargo also caused a sharp decline in Iranian oil production, which has fallen to its lowest level in the past 20 years.

Ayatollah Ahmad Janati, the hardline chief of the influential Guardians Council tasked with overseeing elections in the Islamic republic and interpreting the constitution, said earlier this month that the economy is being hit by "war", insisting that Iran must mobilise all its forces to tackle the problem.

And in July, Ahmadinejad acknowledged the magnitude of the impact of the oil embargo saying that Iran must reduce its dependence on oil exports.

The US sanctions, and others imposed by the European Union, aim to pressure Tehran to roll back its nuclear activities, which the West fears are geared to developing atomic weapons. Iran denies its programme is anything but peaceful.

But Iranian leaders have always ruled out yielding to pressure or renouncing their nuclear programme despite worries by the international community.