The measure would empower US President Barack Obama to effectively block firms that supply Iran with refined petroleum products, or the ability to import or produce them at home, from doing business in the United States.
"The prospect of a nuclear-armed Iran is the most serious and urgent strategic challenge faced by the United States, and we must use all of the diplomatic means at our disposal — including tougher sanctions — to prevent that from becoming a reality," said Democratic Representative Howard Berman.
The House passed the bill, which has yet to clear the Senate, by a 412-12 margin with four voting "present."
A top US senator said recently that body will not act on Iran sanctions in 2009.
Because of a lack of domestic refining capacity, oil-rich Iran is dependent on gasoline imports to meet about 40 percent of domestic consumption.
Iran gets most of those imports from the Swiss firm Vitol, the Swiss/Dutch firm Trafigura, France's Total, the Swiss firm Glencore and British Petroleum, as well as the Indian firm Reliance.
Berman, the measure's lead author and chairman of the House Foreign Affairs Committee, said US lawmakers had to act because Iran had rejected Obama's attempts at engagement with "contempt."
Democratic Representative Stephen Lynch criticized the bill, comparing it to the US embargo on Cuba and warning it would cause Iranians to "rally around the flag" against the United States and "undermine" pro-democracy protestors.
"This will unify the Iranian people against us," agreed Republican Representative Ron Paul, another foe of the measure.
But Representative Eric Cantor, the number two House Republican, called the legislation "one of our best chances to convince Iran that it is firmly in its interest to abandon its nuclear ambitions."
The measure calls for the US president to slap sanctions on individuals or entities that provide Iran goods, services, technology or information that helps Tehran boost its domestic production of refined petroleum products.
It also proposes sanctions on companies that help Iran import gasoline, including companies that fund the shipments, shipping firms, or their underwriters.
And it calls for sanctions on individuals or entities that invest at least 20 million dollars in Iran's energy sector, toughening a 1996 sanctions law.
The legislation includes fairly sweeping presidential powers to exempt a person or firm from sanctions, including the ability to spare citizens or residents of countries belonging to a US anti-proliferation initiative.
Iran says its nuclear program is for civilian energy purposes and denies Western charges that it seeks an atomic arsenal and could have one in a few years.
"This holiday season we must be careful not to give Iran what is at the top of its wish list and what it needs most to achieve its nuclear ambitions: The gift of time," said Mark Wallace, president of the United Against Nuclear Iran advocacy group.
The bill would also require six-month reports on any person aiding Iran to produce or obtain refined petroleum products.
Republican Representative Mark Kirk, who has been running for Obama's old Senate seat, said the sanctions, if properly enforced, could end the nuclear standoff "without a shot being fired."
The White House meanwhile Tuesday defended Obama's open hand policy towards Iran after Hillary Clinton said nearly a year of offering dialogue to the Islamic state had achieved little progress.
"I think that represents real and genuine progress that the president believes will pay dividends in the coming weeks," said spokesman Robert Gibbs, pointing to statements of the permanent five members of the United Nations Security Council and Germany condemning Iran's nuclear program, including Russia and China.
