A US general says intelligence reports indicate elite Iranian troops are operating in Iraq and are training Shi'ite militants there to attack US and Iraqi forces.
Meanwhile, critics in Washington warn that Iranian involvement with Iraq's Shi'ite community could spark a regional conflict, as other countries back Iraqi Sunnis.
Speaking from Baghdad, Major General Rick Lynch says intelligence reports indicate about 50 members of the Iranian Revolutionary Guards Corps have been crossing the border to train militants in using mortars and rockets.
Senator Kit Bond, the Republican vice-chairman of the Senate Select Committee on Intelligence, said he believes any Iranian troops found in Iraq should be dealt with harshly.
"And when we catch them, we're going to kill them all."
Speaking on CNN's Late Edition program, Bond said it is up to Iraqi Prime Minister Nouri al Maliki and his government to defend the country against interference by Iran. Otherwise, he said, Iraq could become a nni-Shia battleground for regional interests.
"If al Maliki can't do it, somebody else will. We will help assure that Iraqi security forces get a secure country. If Iran comes in, they're really going to find Saudi Arabia, Egypt, other Sunni states coming in from the other side."
Washington has accused Iran of fomenting violence in Iraq by supporting that country's Shi'ite militias. Iran denies the charges.
Just days ago, the Bush administration said it is considering officially designating the Iranian Revolutionary Guards a foreign terrorist organization, a move that would impose U.S. financial penalties against the group's business interests.
Outgoing presidential adviser Karl Rove told NBC's Meet the Press television program this move was part of what he said was the Bush administration's strategy of using all available tools to deal with global terrorism. He hinted that there could be further action against Iran, but did not elaborate.
"I don't want to get deeper into it. There are things that are being discussed, many of which I'm not privy to. I'm confident the policy will be laid out in due time."
Iraqi lawmaker Mahmoud Othman told CNN's Late Edition it is common knowledge in Iraq that there is "Iranian help" going to some of the Iraqi Shi'ite militias.
"There are forces in Iraq, which are friendly to the Iranian. They have always been friendly to them. They have relations. They are now in the government. And they think Iran is a friend. But America says it's an enemy."
He urged the US and Iraqi governments to, in his words, "sit down, sort it out" and develop "a common policy" on the issue of Iran.