"The proposed substitute, the Tor anti-aircraft system will be unable to fulfill the S-300's functions," Iranian Ambassador to Moscow Reza Sajjadi said on Monday.
Iran has filed complaint with the International Court of Justice in the Hague against Russia on S-300 missile defense system, demanding $4bln for losses due to delay in delivery of the systems by Russia.
Under a contract signed in 2007, Russia was required to provide Iran with at least five S-300 air-defense systems. However, Moscow's continued delays in delivering the defense system drew criticism from the Islamic Republic on several occasions.
"Under the contract, if either party fails to abide by the obligations assumed, the other party will have the right to turn to court," Sajjadi said.
Russia has been refusing to deliver the system to Iran under the pretext that the system is covered by the fourth round of UN Security Council resolutions against Iran.
Then-President Dmitry Medvedev signed a decree prohibiting the sale of Russian weapons, including S-300s, to Iran in 2010 after the United Nations imposed sanctions against the Islamic republic.
Iran dismissed Russia's justification that the ban on the delivery of the S-300 missile system to Iran was in line with the (US-engineered) UN Security Council Resolution 1929, and stated that this is an air defense system which is not included in Resolution 1929.
Iran then sued Russia for breach of the contract and made Moscow return its advance payment along with its interest fees in May.
Due to the export ban on S-300 exports to Iran, Russia lost about $1 billion dollars.
After Russia annulled the S-300 contract, Iran started making the advanced system domestically. Tehran's defense officials have announced that the early versions of the system will be unveiled as soon as next year.
After shipments of S-300 were stopped in 2009, Iran also canceled talks on buying 40 TU-204 passenger aircraft, which would have added about $3.5 billion of revenue.
Analysts believe that President Vladimir Putin may resume shipments to Iran in retaliation for the US selling weapons to Georgia and at the same time to promote Russia as an arms exporter.
Fifty-five countries including India, China, Venezuela, Syria and the US buy Russian weapons. Sales of new-generation air defense system S-400s to China may begin as early as 2015.