The missile is based on China's C-802 cruise missile which has a range of 120 kilometers (74 miles), the Sankei Shimbun said quoting Western military sources.

In the mid-1990s, China began selling C-802 missiles to Iran before freezing exports in 1996 when the United States demanded a halt saying such arms transfers could destabilize the Middle East, the daily said.

Then chairman of the US Joint Chiefs of Staff, John Shalikashivili, warned Chinese Defence Minister General Chi Haotian In December 1996 that arms exports would increase destabilizing factors in the region, it said.

"Iran expected to purchase 150 C-802 missiles from China but only received a half of them because of the arms suspension," the daily quoted a source as saying.

"What is more, these missiles were not equipped with advanced missile systems and the system Iran possessed then was so outdated that it needed to acquire the latest missile system." the source said.

Iran has since turned to North Korea for know-how on missile system technology and they are now jointly developing the missile, the daily said.

It said the main purpose of the joint development was to upgrade the missile's accuracy.

North Korea has sold missiles to Iran to earn foreign currency and oil and Pyongyang may have received money from Tehran to jointly develop the missile, the daily said.

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