Gilbraltar's government said it could not seek a court order to detain the ship because US sanctions against Iran were not applicable in the European Union. (Photo: Representational | AFP)

Gibraltar: Gibraltar on Sunday rejected a US demand to seize an Iranian oil tanker at the centre of a diplomatic dispute as it prepared to leave the British overseas territory after weeks of detention.

Gilbraltar's government said it could not seek a court order to detain the ship because US sanctions against Iran were not applicable in the European Union.

A Gibraltar judge had ordered the Grace 1 tanker released, but the US filed a request to detain the ship alleging it was involved in supporting illicit shipments to Syria by Iran's Islamic Revolutionary Guard Corps, listed as a terrorist group by Washington.