The move comes amid a standoff between Tehran and Washington over Iran's nuclear fuel enrichment program. The Bush administration insists the program is cover for a nuclear weapons program, a charge that Iran denies.
All current international oil transactions on the New York Mercantile Exchange and London's International Petroleum Exchange are priced in dollars.
Middleeastforex.com reported May 13 that Ahmadinejad announced the change Friday during a visit to Baku, Azerbaijan.
Many political observers see the decision as an attempt to pressure Washington, which is attempting to line up other U.N. Security Council members to act against Iran for its nuclear policies.
Iran has also proposed establishing a euro-based Iranian oil bourse to compete with NYMEX and the IPE. The proposal was first put forward in the beginning of the Third Development Plan (2000-2005), and began to receive serious attention in 2005.
Some observers speculate that the Iranian switch to euros could negatively affect the dollar, as many central banks from oil importing nations could choose to stock up their currency reserves with euros rather than dollars.