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BAGHDAD, Sept 20 (Reuters) - The U.S. military on Thursday arrested an Iranian man they accused of smuggling roadside bombs into Iraq and training foreign fighters, but Iraqi and Iranian officials said he was a member of a trade delegation.

U.S. soldiers raided a hotel in Sulaimaniya in the northern Iraqi region of Kurdistan and took the man into custody, accusing him of being a member of the Quds Force of Iran's Revolutionary Guards.

The latest detention by U.S. forces of an Iranian in Iraq will likely heighten tensions between Washington and Tehran, already strained over earlier arrests and Iran's nuclear programme.

"Contrary to recent diplomatic initiatives, this individual has been involved in transporting improvised explosive devices and explosively formed penetrators into Iraq," the U.S. military said in a statement.

"Intelligence reports also indicate he was involved in the infiltration and training of foreign terrorists in Iraq."

Iran's semi-official Fars news agency quoted an unnamed official from the governor's office of the province of Kermanshah, which neighbours Iraqi Kurdistan, as saying the detained man was a businessman.

"He was a member of a trade and economic delegation that was supposed to follow up agreements made between the two sides over the transfer of fuel from Kermanshah to Sulaimaniya," the source told Fars.

A spokesman for the Kurdistan government said the man was taken away after a raid on the Sulaimaniya Palace hotel at about 4 a.m.. A government official in Baghdad said the man was part of a commercial delegation.

Relations between the United States and Iran are tense over the arrest by U.S. forces of five Iranians in the Iraqi Kurdish city of Arbil earlier this year.

Tehran says the five are diplomats. Washington says they were supporting militants operating in Iraq.

Calling for a withdrawal of U.S. troops from the region, Iranian Foreign Ministry spokesman Mohammad Ali Hosseini condemned the arrest.

"Such measures by American troops are an obvious violation of international conventions and it is completely inappropriate. It aims to damage Iraq's relationships with neighbouring countries," he was reported by the state broadcaster' Web site as saying.

The two old foes are also at odds over Iran's nuclear programme, which Tehran says is for peaceful ends but the West suspects is aimed at making atom bombs.

The United States accuses Iran of arming and training Shi'ite militias in Iraq and supplying roadside bombs, including sophisticated, armour-piercing "explosively formed penetrators".

Tehran denies the charge and blames the violence in Iraq on the U.S.-led invasion in 2003 to topple Saddam Hussein.

The two sides have held several rounds of talks this year on security in Iraq, ending a diplomatic freeze that had lasted almost three decades.

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