According to Reuters, citing a statement issued on Saturday, Panama's maritime authority began the process of canceling the registration of an oil tanker called MT Riah and launched the flag withdrawal process after an investigation determined the ship had "deliberately violated international regulations" by not reporting an unusual situation.
"We roundly condemn the use of Panamanian flagged ships for illicit activities", the authority said in a statement.
Panama, which reportedly has the largest merchant fleet in the world, has recently withdrawn flags from dozens of vessels, some of which were reportedly operated by Iran. It remains unclear which country or company owns and operates the MT Riah, according to Reuters.
Iran's Islamic Revolution Guards Corps (IRGC) reported Thursday seizing a foreign oil tanker with illegal cargo in the Persian Gulf, without providing further details.
An IRGC video with footage of the seizure was earlier released by local Press TV news agency, showing two boats blocking the way of a larger vessel which has the words "Riah" and "PANAMA" written on it.
The Iranian YJC news agency reported, citing a source, that the ship sailed under a UK flag, although the media report noted the claim was unconfirmed.
The controversial incident with another oil tanker in the Persian Gulf occurs at a time of increased tensions in the area.
On Friday, Tehran seized a UK-flagged cargo vessel named the Stena Impero during its passage through the Strait of Hormuz. The incident involving the Stena Impero came after UK Marines seized an Iranian supertanker off Gibraltar on 4 July on suspicion it was carrying oil to Syria in violation of EU sanctions.
The situation in the Persian Gulf and adjacent areas has deteriorated over the past few months. In May, several oil tankers were targeted by sabotage attacks off the United Arab Emirates' coast, and the United States blamed Iran for the incidents.
In June, two more oil tankers were hit by explosions in the Strait of Hormuz, a body of water connecting the Gulf of Oman with the Persian Gulf. The United States again accused Iran of staging the attacks. Tehran has denied all accusations.
The ongoing tit-for-tat comes after the United States restored tough economic sanctions on Iran after suddenly withdrawing from the JCPOA - also known as the Iran nuclear deal - and ramped up its military presence in the area in response to an alleged threat from the Islamic republic.