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South Korea and Iran have agreed a way forward that could see billions of dollars of frozen oil money unblocked, Seoul said Tuesday, but signalled that the agreement was effectively subject to US approval.

Tehran last month seized a South Korean-flagged tanker in sensitive Gulf waters, citing the ship's "repeated infringement of maritime environmental laws".

The seizure of the tanker came after Tehran had urged Seoul to release billions of dollars of Iranian assets frozen in South Korea under US sanctions over its nuclear programme.

The South's foreign ministry said Iran's central bank governor and Seoul's ambassador had reached an agreement in Tehran.

"Iran has agreed to our proposals to use the fund," the ministry said in a statement, without giving details.

There have been suggestions the money could be used to buy coronavirus vaccines, or to pay Iran's debts at the UN.

But the South Korean ministry added: "Actual lifting of the fund freeze will have to go through consultations with related actors including the US."

The comment suggests Washington - which is insisting Iran move first in the nuclear stand-off - will have a de facto veto on any transfers.

The Iranian government released a separate statement on the deal, quoting Central Bank of Iran governor Abdolnasser Hemmati saying it would continue to demand compensation from South Korean banks.

"The South Korean side needs to make a lot of efforts to erase this negative record," he added.

Iranian government spokesman Ali Rabiei said Tuesday that "we will receive around $1 billion of our funds" frozen in South Korea initially, citing Hemmati.

According to Rabiei, Tehran has a total of $7 billion of funds blocked in Seoul.

Iran was a key oil supplier to resource-poor South Korea until Washington's rules blocked the purchases.

The then US president Donald Trump in 2018 withdrew Washington from a landmark nuclear agreement with world powers and then reimposed and reinforced crippling sanctions on Iran.

Tehran has repeatedly denied any link between the ship's seizure and the recovery of the funds, and earlier this month said it had agreed to allow the crew members to leave in a "humanitarian move".

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