India has called off plans that have irked Washington and Israel to channel oil payments to Iran through the German central bank, a German source said Tuesday.

The official, who spoke on condition of anonymity, denied an earlier report that Chancellor Angela Merkel had intervened to stop the deal between the Bundesbank and India but said it was off nonetheless.

"There were no orders from the chancellery," the source said.

"The chancellery was in talks with the Indian government and the Indian side declared of its own accord that it would in future use another method of payment."

According to the Handelsblatt business daily, India, under US pressure to break direct commercial links with the Islamic republic, had placed money for its Iranian oil imports in an account with the Bundesbank.

The Bundesbank would then have transferred around nine billion euros ($12.8 billion) annually to the European-Iranian Trade Bank AG (EIH), based in Hamburg, northern Germany, before passing the funds to Iran, the paper said.

The Bundesbank said it would comment on the issue later Tuesday.

The German government had said it was powerless to stop the deal because EIH, also known as EIHB, was not subject to sanctions because the bank was not involved in financing Iran's controversial nuclear activities.

The New York Times last week quoted an unnamed US Treasury official as saying the United States was "concerned" and that Washington wanted "to work with all our allies to isolate EIH."

Israel and Jewish groups were also reported to be annoyed.

Germany has long been under fire for its close business ties with Iran, with the country's exports there totalling 3.8 billion euros in 2010, according to official figures.

Sales generated in Iran by German industrial giant Siemens in its last business year, which ended September 30, rose more than 20 percent to 680 million euros, the Wall Street Journal reported Tuesday.