Incoming ballistic missile fire triggered nationwide warnings on Tuesday night for UAE residents to seek shelter, the first time in weeks such an alarm had sounded.
Early in the conflict, the UAE regularly came under intense fire from Iran, and most trade between the countries, which had once been important trading partners, ground to a halt.
In late June, as hostilities eased, at least some maritime trade resumed, Iran's state-run IRNA news agency reported, but it was not clear how much trade there was more recently.
Following the news that two ballistic missiles had been fired toward the UAE, both of which splashed down in the Persian Gulf late on Tuesday, the foreign ministry said that while it remained committed to "dialogue, co-operation and regional integration", it had decided to impose the punitive measures.
"In light of regional escalations that undermine regional and international peace and security, all trade, commercial exchanges and financial transactions with Iran have been halted until further notice," the ministry said in a statement.
The UAE's defence ministry said assessments showed that the missiles targeted maritime traffic.
Iranian foreign ministry spokespman Esmail Baghaei denied that Iran had launched any missiles towards the UAE.
As part of Iran's efforts to maintain a stranglehold over the Strait of Hormuz, it has regularly attacked ships attempting to use the waterway, including four tankers owned by Abu Dhabi's state-owned ADNOC oil and gas company in the past two weeks.
None of the attacks caused any injuries, but they brought harsh condemnation from the UAE and others in the region, including Kuwait and Bahrain.
Since the beginning of the conflict nearly 20 ADNOC vessels have been attacked by missiles and drones in the Strait of Hormuz, killing one person and wounding another 20.
Iran's ability to control traffic through the Strait of Hormuz, through which a fifth of traded oil and natural gas passed during peacetime, has proved its biggest strategic advantage in the war.
While the US and Israel - which launched the war on February 28 - have given various aims, including toppling Tehran's government and ending its nuclear program, the conflict has devolved into a fight over the strait.
During the war, Iran has launched hundreds of ballistic missiles and thousands of drones in strikes that Tehran said were targeting American assets but hit buildings in Dubai and Abu Dhabi, Dubai's commercial airport, ports and energy infrastructure.
Iran has accused the UAE and other US allies in the Gulf of facilitating American military attacks on Iran, and Iranian Chief of Staff General Ali Abdollahi on Wednesday issued a new warning to "countries on the southern shores of the Persian Gulf".
"Any assistance or facilitation provided to the aggressor US military amounts to participation alongside US military forces," he said in a statement.
Before the war, the UAE was one of Iran's biggest trade partners, providing more than 30 per cent of its imports valued at some $US21 billion ($A30 billion), according to the World Trade Organisation.
It was the destination for nearly 13 per cent of its exports worth some $US7 billion.
The Emirati announcement comes as the US prepares to apply new economic pressure on Iran.
Speaking last week, Treasury Secretary Scott Bessent said the measures would be a combination of economic isolation and the continued American blockade of Iranian ports.
The economic pressure follows the intense bombing campaign that targeted industrial and civilian infrastructure as well as military targets.
