"The visit of Foreign Minister Franco Frattini to Iran will not take place following Tehran's conditioning request to plan the protocol meeting with the Iranian president in a city other than the capital, in Semnan," the ministry said in a communique.
The cancellation came as Iranian President Mahmoud Ahmadinejad announced from the northern town that Iran has test-fired a new medium-range surface to surface missile, and again insisted there will be no climbdown over Iran's nuclear programme.
"This request received this morning was not welcomed by the foreign minister who wanted to express his strong regret over a lost opportunity," the foreign ministry said.
Frattini had hoped to explore ways in which to "involve Iran in the stabilisation of Afghanistan and Pakistan," it said.
Frattini was also expected to raise the issue of Iran's nuclear capability and the Middle East, the ministry said earlier.
He was to reiterate the "two peoples and two states" solution to the conflict between Israel and the Palestinians, and the principle of "recognising the existence of the state of Israel whose security is absolutely not negotiable," the ministry said.
Iranian state television showed footage of the launch of the missile, which is similar in size to Iran's medium-range Shahab 3.
In the past, Iran has often boasted of developing new weapons systems only to be met with scepticism from Western defence analysts.
But archfoe Israel said the new missile test should also be a source of concern for European countries which could now be in range along with Israel.
Earlier this month Frattini, who was to have spent two days in Tehran, said that US Secretary of State Hillary Clinton was in favour of Iran attending a meeting on Afghanistan in June when G8 foreign ministers gather in Triest, Italy.
