European Union governments gave their preliminary approval to a ban on Iranian crude oil imports on Monday, aiming to choke off Tehran's chief source of income and pressure it to hold back its disputed nuclear activities.

But to protect Europe's economy, struggling with a two-year-old debt crisis, they agreed to delay full implementation of the oil embargo until July 1, an EU diplomat said.

The embargo still has to be formally approved by foreign ministers of the EU's 27 member states, who meet in Brussels on Monday. The ministers are also expected to approve sanctions against the central bank of Iran, although they may provide a list of specific exemptions to the restrictions.

EU foreign policy chief Catherine Ashton said she hoped financial sanctions would persuade Tehran to return to negotiations with Western powers, which she represents in talks with Iran. Tehran denies its nuclear programme is aimed at developing weapons, saying it is for peaceful purposes.

I want the pressure of these sanctions to result in negotiations, she told reporters before the ministers' meeting.

I want to see Iran come back to the table and either pick up all the ideas that we left on the table ... last year ... or to come forward with its own ideas, she said.

Tehran says its nuclear programme aims to meet its rising energy needs, but the United Nations' International Atomic Energy Agency said last year it had evidence that suggested Iran had worked on designing a nuclear weapon.

EU sanctions follow fresh financial measures signed into law by U.S. President Barack Obama on New Year's Eve and mainly targeting the oil sector, which accounts for some 90 percent of Iranian exports to the EU. The European Union is Iran's second-largest oil customer, after China.

For financial sanctions against the Islamic Republic, ministers are expected to agree to exemptions that will allow trade in other products, allowed under EU rules, to continue.

The United Kingdom is looking for an unprecedented package of sanctions, said its foreign minister, William Hague, including a phased oil embargo, including measures on the central bank of Iran, other financial measures, new measures on the use of dual-use technology that may be included in the nuclear programme.

MEASURED STEPS

Diplomats said EU governments plan to return to the issue of oil sanctions in May to review the impact of the ban and its economic impact on their economies.

The review could potentially affect the date when the full ban takes effect, diplomats said. Under the current plan, EU governments will no longer be able to extend new contracts to buy Iranian crude when the ban takes effect in the coming days. But they will be able to fulfil existing contracts until July.

This measured approach aims to address concerns by southern European states, primarily Greece, which rely heavily on Iranian oil to meet their import needs.

Greece, which depends on financial help from the EU and the International Monetary Fund to stay afloat, sources nearly a quarter of its oil imports from Iran, thanks to favourable financing terms from Tehran. It has argued that it needs time to find alternative sources of oil.

The financial situation of Greece at the moment is not the brightest one, and rightly they are asking us to help them find a solution, a senior EU official told reporters on Friday.

With a significant part of EU purchases of Iranian oil covered by long-term contracts, the grace period will be an important factor in the effectiveness of the EU measures.

The unprecedented effort to take Iran's 2.6 million barrels of oil per day off international markets has kept global prices high, pushed down Iran's rial currency and caused a surge in the cost of basic goods for Iranians.

(Additional reporting by Adrian Croft in London and Sebastian Moffett in Brussels; Editing by Mark Heinrich)