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US President Donald Trump threatened to strike Iran's bridges and power plants next week if it did not return to talks.
The comments in a Fox News interview aired as the two countries exchanged fire for the fourth day in a row.
Trump earlier reversed a threat of a 20% fee on all Strait of Hormuz cargo shipping but resumed blockading Iranian ports.
"Next week it gets really bad for them," Trump said. "We're going to knock out all their power plants. We're going to knock out all their bridges unless they get to the table and negotiate," he said, repeating earlier threats condemned at the time by UN officials.
After Trump threatened in April to bomb civilian infrastructure in Iran, including bridges and power plants, UN human rights chief, Volker Türk said: "Under international law, deliberately attacking civilians and civilian infrastructure is a war crime."
The 1949 Geneva Conventions on humanitarian conduct in war prohibit attacks on sites considered essential for civilians.
"I'll save the energy targets for last, but ultimately we'll hit energy targets," Trump said in an interview on "Special Report with Bret Baier" that aired on Tuesday night.
He said US negotiators had conveyed to their Iranian counterparts on Tuesday evening that they "'better make a deal, or you're not going to have anything left'".
The escalation in rhetoric comes after Trump said a 20% toll he had threatened to impose in the Strait of Hormuz would be replaced by "massive" trade and investment deals with Gulf states. His announcement came hours before the US resumed its blockade of Iranian ports.
Renewed strikes between the US and Iran triggered a sharp rise in oil prices as tanker traffic through the Strait has virtually stalled.
US Central Command (Centcom) said late on Tuesday its "forces began launching an additional round of strikes against Iran to continue degrading Iranian capabilities used to attack commercial shipping" in the key waterway.
In a statement late on Tuesday, US Admiral Brad Cooper said Iran had "intentionally targeted civilians" in the region by attacking seven commercial ships, which had resulted in "nearly a dozen civilian crew members killed, missing, or injured".
The United Arab Emirates said on Monday night that Iranian cruise missiles had targeted two national tankers, killing an Indian crew member and wounding eight others, four seriously.
Iran's Islamic Revolutionary Guard Corps (IRGC) later confirmed the strikes via a statement to Telegram, where it said two tankers had ignored warnings, turned off navigation systems and attempted to pass through a mined route.
It was unclear which other attacks the Centcom statement was referring to. The IRGC did not immediately comment.
In the early hours of Wednesday, Kuwait's military said it was intercepting Iranian attack drones, while Bahrain activated air raid sirens.
"Kuwaiti air defences are currently engaging hostile drone attacks following the nefarious Iranian aggression," the Kuwaiti army said. Bahrain's interior ministry urged citizens and residents to remain calm and head to the nearest safe place.
Tehran said on Tuesday it had targeted US military facilities in Bahrain and Jordan after earlier hitting two United Arab Emirates tankers.
The ongoing strikes have underscored the strategic importance of the Strait of Hormuz. Iran accuses the US of interfering in its management of Hormuz – but controlling it means Tehran can also threaten the global economy.
Trump on Monday declared that the US was now the "guardian" of the Strait of Hormuz, and vowed to impose a 20% charge on all cargo shipped through the waterway to pay for protecting it.
Raising the stakes further, Trump said the US would also reimpose its naval blockade on Iran in a bid to further squeeze the country's struggling economy.
In his latest post on Truth Social, Trump wrote: "I have decided to replace the 20% United States Reimbursement Fee with Trade and Investment Deals that the various Gulf States will be making into the United States.
"Those Investments will be MASSIVE but, at the same time, extraordinarily good for them, and their future." The US president provided no further details.
He also said the strait "is open to ALL Ship traffic except for Iran" and that "oil is flowing like never before, thanks to the awesome Power of the United States Military".
Speaking later after talks in Washington with the new Iraqi Prime Minister Ali al-Zaidi, Trump said: "I don't like the concept of a fee, but at the same time, it's not fair that we're protecting this Strait for the entire world."
He said he had changed his initial fee plan after receiving numerous calls from Gulf leaders.
In response to Trump's announcement, Iran said it would remain in control of the Strait of Hormuz.
Iran's Deputy Foreign Minister Kazem Gharibabadi said Trump's blockade decision "has, in a way, dismantled" an earlier agreed truce deal, the AFP news agency reported.
Gharibabadi also told state television, as quoted by Reuters news agency: "If the US thinks that by tightening its measures against us, its military actions and its economic blockade, we will return to negotiations, it is making a mistake."
The US first imposed a naval blockade of all Iranian ports in April to put pressure on Tehran. Roughly five weeks later, the US military said it had redirected 100 commercial vessels and disabled four under the blockade.
The US lifted the blockade in June as part of a deal - known as a memorandum of understanding - between the two countries that aimed to end the conflict, but a dispute over the strait has become a key point of contention.
Meanwhile, shipping data shows traffic through the strait has slowed to a two-month low. The benchmark Brent Crude oil price has also risen sharply.
Source: BBC
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