The disclosure from the White House came a day after the US Senate passed a resolution that would deny the diplomat, Hamid Aboutalebi, a US visa.
"The US government has informed the government of Iran that this potential selection is not viable," White House spokesman Jay Carney said.
The clash over the ambassadorial nomination threatens to complicate a key moment in the easing of relations between Washington and Tehran as both sides strive to conclude a deal on the Islamic Republic's nuclear programme.
It says he is a veteran diplomat with a successful record and is as such qualified to serve at the UN.
Seen as close to the reformists and an ally of President Hassan Rouhani, Aboutalebi is currently the director general of the presidency's political affairs bureau.
He has previously served as ambassador to the European Union, Belgium, Italy and Australia.
The State Department has previously warned that Aboutalebi's nomination would be "extremely troubling."
Aboutalebi has insisted he was not part of the hostage-taking in November 1979, when students who had overthrown the pro-Western shah seized the US embassy, but that he later joined the student group.
The remaining 52 diplomats spent a total of 444 days in captivity, enraging the United States and poisoning relations between Washington and Tehran for a generation.
As the host government, the United States generally is obliged to issue visas to diplomats who serve at the United Nations, although there have been exceptions.
The Senate unanimously passed a resolution that would deny Aboutalebi an entry visa.
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