"Dear Iranians, your children have put the first indigenous satellite into orbit," a jubilant President Mahmoud Ahmadinejad said on state television after a launch coinciding with the 30th anniversary of the Islamic revolution.
"With this launch the Islamic Republic of Iran has officially achieved a presence in space," he said.
The Omid (Hope) satellite was sent into space on Monday evening carried by the home-built Safir-2 space rocket, local news agencies reported.
In the first foreign reaction, France expressed concern because the technology used was "very similar" to that employed in ballistic missiles.
"We can't but link this to the very serious concerns about the development of military nuclear capacity," foreign ministry spokesman Eric Chevallier said in Paris.
In Washington, State Department spokesman Robert Wood said the satellite programme could "possibly lead to the development of ballistic missiles."
"That's of great concern to us," he said.
In London, British Foreign Office Minister Bill Rammell voiced "serious concerns" over the launch.
"This test underlines and illustrates our serious concerns about Iran's intentions," Rammell said in a statement issued by the Foreign Office, adding that Britain was still carrying out technical analyses.
The launch comes at a time when Iran is defiantly refusing UN Security Council demands to freeze sensitive nuclear work.
The West suspects Iran of secretly trying to build an atomic bomb and fears the technology used to launch a space rocket could be diverted into development of long-range ballistic missiles capable of carrying nuclear warheads.
Iran vehemently denies the charges, saying its nuclear programme is for peaceful energy purposes and that it has the right to the technology already in the hands of many other nations including its arch enemy the United States.
Ahmadinejad said the satellite carried a message of "peace and brotherhood" to the world and dismissed suggestions that Iran's space programme had military goals.
"We have a divine view of technology unlike the dominating powers of the world who have Satanic views," he said.
In Addis Ababa on the sidelines of an African Union summit, Iranian Foreign Minister Manouchehr Mottaki said the satellite would enable Tehran to receive "environmental data," adding that "the technological capacity of Iran is meant to meet the needs of the country."
Ahmadinejad has made scientific development one of the main themes of his presidency, asserting that Iran has reached a peak of progress despite international sanctions and no longer needs help from foreign states.
The state news agency IRNA said the satellite would take orbital measurements and would circle the Earth 15 times every 24 hours.
Iranian aerospace expert Asghar Ebrahimi said Omid has an elliptical orbit of minimum of 250 kilometres (156 miles) and maximum 400 kilometres.
The launch comes on the eve of a meeting in Germany on Wednesday of senior diplomats from six world powers who are are due to discuss the Iranian nuclear standoff, with Tehran still defying calls for a freeze on uranium enrichment.
New US President Barack Obama said last month shortly after taking office that he was willing to extend the hand of diplomacy to Iran, after 30 years of severed diplomatic relations.
Iran sent its first Safir rocket into space in August. It is about 22 metres long, with a diameter of 1.25 metres and weighs more than 26 tonnes .
Iran's most powerful military missile, the Shahab-3, has a diameter of 1.30 metres and measures 17 metres in length. It has a range of 2,000 km -- putting Israel and US forces in the region within reach.
Last year Iran triggered concern in the West when it said it had sent a probe into space on the back of a rocket to prepare for a satellite launch, and announced the opening of its space station in a remote western desert.
Iran has pursued a space programme for several years, and in October 2005 a Russian-made Iranian satellite named Sina-1 was put into orbit by a Russian rocket.
Reza Taghipour, head of the Iranian space agency, said Iran would launch another satellite carrier by the end of the Iranian year on March 20, Fars said.