Indian Prime Minister Narendra Modi on Monday pledged up to $500 million to develop the southern Iran port of Chabahar, in a move to give his country trade access to Iran, Afghanistan and central Asia.
The route is currently all but blocked by Pakistan, long at odds politically with India.
The deal, which runs in conjunction with the development of road and rail links through Iran to Afghanistan, also represented a strategic victory for India over China, which has been competing to develop the port.
Modi signed the development deal on the first visit by an Indian leader to Iran in 15 years. He was joined by Iranian President Hassan Rouhani and his Afghan counterpart Ashraf Ghani.
"This deal will be like spring for all three countries," Rouhani said at a joint news conference, a play on the name of the Chabahar port.
The word "bahar" means spring in Farsi.The project means India will be able to tap into the Iranian and Afghan markets, and land-locked Afghanistan will also get an alternate to the port of Karachi in Pakistan.
"This is a corridor of peace and prosperity," Modi said of the trilateral deal in a tweet. "It will positively impact the lives of people and deepen economic ties.
"Talks to develop the port have been underway for some years, but the nuclear deal that Iran signed with Western powers last summer, as well as the removal of some sanctions earlier this year, gave the project momentum.
Chabahar is about 100 km (60 miles) from Pakistan's Gwadar seaport which China is developing as part of a $46 billion China-Pakistan Economic Corridor.
The Chinese project, coming on top of investments in Sri Lanka, Bangladesh and the Maldives raised some disquiet in India about China's expanding reach in the region and prompted faster movement on the Iranian project.