Iran's opposition planned on Saturday to defy a ban on a new rally to be addressed by President Mahmoud Ahmadinejad's main rival after the nation's supreme leader demanded an end to street protests.
Tehran has witnessed daily demonstrations since the disputed re-election of Ahmadinejad last week drew claims from his rival Mir Hossein Mousavi of massive vote fraud.
Siding with Ahmadinejad in his first public appearance since the June 12 election, Ayatollah Ali Khamenei ruled out major fraud in the poll, warning defeated candidates would be held accountable over fresh street violence.
"The people have chosen whom they wanted," Khamenei said in a sermon at weekly prayers in Tehran on Friday, referring to Ahmadinejad.
"I see some people more suitable for serving the country than others but the people made their choice," he said to cheers from tens of thousands of faithful, who included Ahmadinejad.
After the sermon US President Barack Obama warned Iran that the "world is watching" its actions.
"I'm very concerned based on some of the tenor -- and tone of the statements that have been made -- that the government of Iran recognise that the world is watching," Obama said on US television.
"And how they approach and deal with people who are, through peaceful means, trying to be heard will, I think, send a pretty clear signal to the international community about what Iran is and -- and is not," Obama said.
Obama also attempted to debunk claims by some in the Iranian leadership that the opposition demonstrators were acting at the behest of the United States, which has had a long history of antagonism with Iran.
Senior US officials earlier stressed that Washington was making strenuous efforts to avoid being drawn into the crisis in a way that could be used by the government against the demonstrators.
"The more the United States looks like they are going to interfere, the more it is going to be detrimental," said one official on condition of anonymity. "This is not about us."
Despite assurances by top officials that Washington would not inject itself into the crisis, both houses of the US Congress voted to condemn violence against demonstrators by the government of Iran.
A House resolution expressed "its support for all Iranian citizens who embrace the values of freedom, human rights, civil liberties, and rule of law."
Democrat Howard Berman, chairman of the House Foreign Affairs committee, said: "It is an acknowledgement that we cannot remain silent when cherished, universal principles are under attack."
A similar measure passed by voice vote in the Senate.
Iran's reformist former parliament speaker Mehdi Karroubi meanwhile became the second losing candidate to demand a new election, in a letter to the electoral watchdog the Guardians Council.
Ahmadinejad's principal challenger Mousavi, a former prime minister, has repeatedly demanded a re-run of the poll, denouncing the election as a "shameful fraud."
But Khamenei said there could be no doubting Ahmadinejad's re-election to a second four-year term, despite the 646 alleged poll violations registered by the three defeated candidates with the Guardians Council.
"The legal mechanisms in our country do not allow cheating. How can one cheat with a margin of 11 million votes?"
Khamenei demanded an end to protests that have rocked Tehran for the past week, warning that otherwise there could be further bloodshed beyond the seven deaths reported by state radio.
Amnesty International said on Friday it had information on up to 10 deaths in post-election protests.
In the evening witnesses reported that many members of the hardline Basij militia deployed in Tehran streets, for the first time in full uniform, wearing helmets, carrying clubs and some of them Kalashnikov rifles.
Mousavi and two other defeated candidates have been invited to set out their grievances before the Guardians Council on Saturday.
The council said it will make its decision about any recount on Sunday.
World powers expressed renewed concern about the post-election violence and widespread arrests, with EU leaders urging Iran on Friday to respect the right to protest.
But in the face of the regime's biggest crisis since the 1979 revolution overthrew the pro-Western shah, Iran's Islamic rulers have repeatedly lashed out at "meddling" by foreign powers.
Khamenei renewed the charge on Friday, singling out Britain.
"Today, top diplomats of several Western countries who talked to us so far within diplomatic formalities are showing their real face and most of all, the British government," he said.
Foreign Secretary David Miliband insisted he would not allow Khamenei to turn the Tehran protests into a "battle" between Britain and Iran.