"The Federal Aviation Office will this week suspend the operating license of Iranian airline Mahan," reported Munich-based daily Sueddeutsche Zeitung.
A foreign ministry spokesman told the paper in Berlin that it "does not inform about internal political decision-making processes".
Mahan, Iran's second-largest carrier after Iran Air, flies four services a week between Tehran and the German cities of Duesseldorf and Munich.
The EU earlier this month targeted sanctions at Iran's security services for their alleged involvement in a series of attacks in the Netherlands, Denmark and France. Iran denies the allegation.
Brussels' measures included freezing funds and financial assets belonging to Iran's Intelligence Ministry and individual officials, but did not target any companies.
By contrast, Mahan Air was blacklisted by the US in 2011, as Washington accused the carrier of providing technical and material support to an elite unit of Iran's Revolutionary Guards known as the Quds Force.
The US Treasury Department has threatened sanctions against countries and companies offering landing rights or services such as on-board dining to the airline's 31 aircraft.
German firms have come under intense pressure from American ambassador in Berlin, Richard Grenell, a close ally of US President Donald Trump, over sanctions against Iran.
Rail operator Deutsche Bahn, Deutsche Telekom, Mercedes-Benz parent Daimler and industrial group Siemens have all said they will stop their operations in the country.
Last week, German authorities said they arrested a German-Afghan military advisor on suspicion of spying for Iran.