"US intelligence fears the Kremlin will supply the sophisticated S-300 system to Iran if Washington pushes through NATO membership for its pro-Western neighbors Georgia and Ukraine", The Sunday Telegraph reported.
According to the report, the proposed deal is causing huge alarm in the US and Israel as the S-300 "can track 100 targets at once and fire on planes up to 75 miles away".
The UK-based newspaper quoted Pentagon adviser Dan Goure as saying that the acquisition of S-300 missiles would "change the game", as it would significantly improve Iranian defenses against any air strike on its nuclear sites.
"This is a system that scares every Western air force," he said.
Senior US intelligence operatives told The Telegraph that they believe Russia is planning to use a stand-off over the S-300 to create a foreign policy showdown that would test the mettle of a new US president.
The report said Republican candidate John McCain has taken a strongly anti-Kremlin line on a series of international issues and backed Georgia's desire to join NATO. His Democratic rival Barack Obama has also indicated he supports NATO membership for Georgia.
"The message from Moscow is very clear," George Friedman, director of Stratfor, a leading US private intelligence agency, told The Telegraph. "They are saying if you don't stop meddling in our sphere of influence, this is what we are going to do.
"Back Georgia and Ukraine for NATO membership and you'll see the S-300 to Iran. It is a very powerful bargaining chip and a major deterrent to US actions in the region. Moscow is playing very strategically on America's obsession with Iran," he was quoted as saying.
'Iran certainly thinks it has a deal'
The Telegraph's report said "Moscow has been infuriated by the steady encroachment of NATO into the former Soviet bloc and the recent granting of independence to the ex-Serbian province of Kosovo against its wishes," and mentioned Syrian President Bashar Assad's recent visit to Russia to discuss military deals "in a deliberate signal of how it could cause trouble for Washington".
A senior US intelligence operative who recently returned from the Middle East told The Telegraph Russia is believed to have struck a tentative deal to sell the S-300 to the Islamic regime. The British daily added that there were reports that Russia has "already moved some basic components for the system to its close ally Belarus, ready for possible transfer to Iran".
"Moscow cannot simply threaten to strike the deal," the official told The Telegraph. "Iran certainly thinks it has a deal. And the Israelis believe that a deal has been reached but that they can still block it."
According to The Telegraph, outgoing Israeli Prime Minister Ehud Olmert is expected to pass that message on to his counterpart Vladimir Putin and President Dmitri Medvedev when he visits Moscow next month. Israel has already ended military assistance to Georgia in an effort to placate Russia, the report said.
Russia has denied previous assertions by senior Iranians that a deal has already been finalized on the S-300.