US President Barack Obama won breathing room Tuesday for his nuclear dialogue with Iran, as legislation calling for strict new sanctions against the Islamic republic lost some crucial support in Congress.

Senator Robert Menendez announced that he and several fellow Democrats had assured Obama they would not vote in support of new sanctions prior to March 24, shortly before a negotiations target date.

Under the interim agreement reached in November, representatives of the so-called P5+1 (United States, Russia, China, Britain, France and Germany) and Tehran gave themselves until March 31 to reach a political agreement -- with a final deal due before July 1.

The Senate will not be in session in the final week of March.

"Many of my Democratic colleagues and I sent a letter to the president telling him that we will not support passage of the Kirk-Menendez bill on the Senate floor until after March 24, and only if there's no political framework agreement," Menendez said, referring to legislation he authored with Republican Senator Mark Kirk.

"We remain hopeful that diplomacy will succeed in reversing Iran's ability to develop a nuclear weapon capability in accordance with the timeline."

Ten senators signed on, including eight who co-sponsored the sanctions bill last year.

Their backing off marks an abrupt reversal, particularly by Menendez who had defied the White House by pressing for swift passage of his bill, which would impose staggered sanctions against Iran in case negotiations on a final agreement fail.

"Clearly the administration made a very compelling, strong case that they wanted the time" for talks to bear fruit, Menendez told reporters.

Without Democratic support, the Republican Senate majority would be unable to pass the sanctions measure.

The Menendez-Kirk bill, which has yet to be formally introduced and is the subject of a fierce battle between Congress and the White House, would gradually strengthen US sanctions against Iran over a six-month period starting in July, to put pressure on the Iranian leadership.

The Obama administration says such a move by Congress in the midst of sensitive and historic talks could derail the diplomatic effort.

But the Democrats who wrote Obama stressed they still backed the bill and, if negotiators fail to reach a political deal, would vote for it on the Senate floor after March.

"This deadline is the critical test of Iranian intentions," they told the president.

- Iran economy in 'deep hole' -

At the start of the hearing, Senate Banking Committee chairman Richard Shelby recalled that it was sanctions that brought Iran to the negotiating table in the first place.

"And the threat of future sanctions represent Iran's only incentive to successfully conclude an agreement," Shelby said.

The panel heard from the Treasury Department's undersecretary for terrorism, David Cohen, who reiterated the administration's argument that existing sanctions continue to cripple Iran's economy.

"In light of the extensive sanctions that remain firmly in place and are being vigorously enforced, it should come as no surprise that the Iranian economy remains in a deep hole," Cohen testified.

Since 2012 oil sanctions alone have denied Iran access to $200 billion in lost exports and other funds, and nearly 100 people and entities have been sanctioned since the joint plan of action was signed by negotiators in November 2013, he said.

Deputy Secretary of State Tony Blinken told the panel the administration reacted "favorably" to Democrats holding fire on sanctions.

He noted also that it will be critical for any final deal with Iran to ensure that its breakout period was "at least one year to produce enough fissile material for one nuclear weapon."