TEHRAN, July 25: Iran was on Sunday threatened with international legal proceedings and possible Canadian sanctions after its hardline judiciary acquitted the sole defendant accused of the killing in custody of Iranian-Canadian photographer Zahra Kazemi.

The Iranian judiciary said the intelligence agent who stood trial for the murder had been found not guilty due to "lack of proof" and declared itself unable to find the real killer.

In the absence of a guilty verdict, the Iranian government was been ordered to pay "blood money" to Kazemi's family. Blood money in Iran for a woman - half that for a man - currently amounts to 120 million rials, or around 13,700 dollars.

"The investigation was flawed and the court overlooked these," complained Nobel Peace Prize winner and lawyer Shirin Ebadi, who has been representing Kazemi's enraged family.

"I will follow the case until my last breath," she said. "I hope this case, with a fair trial, is solved in Iran. But if it is not, since human rights is a universal issue ... I will use all international options in order to see justice done."

She said her legal team would be appealing the verdict, in the hope of widening the probe. The judiciary has been accused of trying an innocent man to cover up for one of its own senior officials.

Kazemi, a 54-year-old freelance photographer with dual nationality, died in July 2003 from a brain haemorrhage, the result of a blow to her skull inflicted while she was being interrogated.

She had been arrested for taking photos outside Tehran's notorious Evin prison, at the time packed with protesters who took part in last summer's wave of anti-regime demonstrations.

Iran's judiciary abruptly closed the trial a week ago. Its decision to bar Canadian diplomats from the last day of the hearings prompted Ottawa to recall its ambassador to the Islamic republic, and the latest verdict means more diplomatic fallout can be expected.

"This is very distasteful. The Canadian government is reviewing its options, but the general view is one way or another, Iran should be sanctioned," a senior Canadian foreign ministry official said.

The source, who asked not to be named, said a possible step could include a permanent downgrading of relations with Iran. The official Canadian foreign ministry spokesman said Ottawa was withholding its formal reaction "for the time being", having not yet been officially informed of the verdict.

The outcome of the trial was nevertheless a relief for the agent put on trial for "semi-intentional murder", 42-year-old Mohammad Reza Aghdam Ahmadi. He had claimed he was a scapegoat and a victim of Iran's complex internal rivalries.

The intelligence ministry is seen as being closer to the reformist government of President Mohammad Khatami and frequently at odds with the hardline courts. Kazemi's son Stephen Hachemi, speaking in Canada and quoted by the BBC, also branded the trial a "cover-up".

"They're not ready to implicate Iranian officials. I have only three letters - ICJ - the International Court of Justice," he warned. The verdict is just the latest twist in the controversial case, seen as a key test of Iran's willingness to tackle what human rights groups allege is the widespread use of torture in its prison system.

The judiciary had initially claimed Kazemi died of a stroke, but a government report later revealed she had been struck by a blunt object. Between her arrest and her admission to hospital, she spent several days being shuttled between the custody of judicial prosecutors, the police and the intelligence ministry.

A probe by reformist deputies accused Tehran's hardline public prosecutor, Saeed Mortazavi, of manipulating evidence and pressuring witnesses. In court last week, Ebadi's team alleged that the real killer could have been Mohammad Bakhshi, a senior justice official working in Evin prison.

Kazemi's mother also told the court that her daughter had been tortured, and said she was pressured into burying the photographer at her birthplace in southern Iran under duress in order to deny Canada the opportunity to carry out its own autopsy.

Iran, which refuses to recognize dual nationality, said Canada had no business observing the trial and said Kazemi's case was a "domestic affair". On various occasions, it has also accused Canada of being "absurd" and "racist". -AFP