Iran's supreme leader, Ayatollah Ali Khamenei, has condemned the decision, while senior Iranian military commanders and government officials have warned of consequences.
"This is very serious, this is important for Iran, Iran does not like it," says Iran analyst Jamsid Assadi of France's Burgundy School of Business. "Iran is feeling very much more isolated and in danger. And if for example when I read Iranian press, especially the very conservative ones, they criticize very clearly what's happening."
Ankara's decision is widely seen as a military and diplomatic victory for Washington, confirming Turkey's commitment to its NATO partners, over its Iranian neighbor.
It's a turn away from the trend of the past few years, when Turkey's Islamic-rooted Justice and Development Party (AKP) had prioritized deepening its relations with Tehran as part of its policy of "zero problems" with its neighbors.
Turkish Prime Minister Recep Tayyip Erdogan at one point even described Iranian President Mahmud Ahmadinejad as a good friend of Turkey, and criticized Ankara's Western allies for their tough stance toward Tehran over its nuclear program.
But former Turkish diplomat Sinan Ulgen believes the policy of rapprochement has come to an end. "I think we can talk about a new phase. So indeed we are entering a period of more realistic assessment," he says.
Ulgen adds that "obviously the fact that these statements are coming out from Tehran show that there is now an increasing risk of heightened tension between Ankara and Tehran. This is a tension that is inherent in the relationship of Turkey with Iran. It is inherent because of a historical legacy, because of the influence that these countries are trying to have in the region, which pits one against the other."
Those inherent tensions were already becoming visible even before the radar-deployment decision. Ankara is increasingly seeking to challenge Tehran's influence over shared neighbor Iraq. In March, Erdogan made a high-profile visit to Baghdad.
But its the Arab Spring and Turkey's positioning itself as a supporter of democracy and even the secular state as a model for the new regimes that poses the greatest threat to Iranian-Turkish relations, none more so than Ankara's support of the Syrian opposition.
"If there is going to be a regime change in Syria, the whole power balance will change," explains political scientist Nuray Mert of Istanbul University. "Because if Iran loses Syria, they will lose an important base of power in the Middle East. So it will be a major defeat for Iran and within this framework, Turkey sides with the dissidents and supports some sort of regime change. Iran will take it directly against itself."
Adding to Tehran's angst, Ankara is now closely coordinating its Syrian policy with Washington, claims former Turkish diplomat Ulgen. "There have been a number very high-level phones calls, conversations between Turkish leaders and the U.S. leadership," he says. "And now the two sides are really on the same page and Turkish policy [as] regards to Syria does seem to have the full support of the U.S. administration."
Turkey's New Assertiveness
But where Ankara does not have Washington's full support is over its continued financial and trade relations with Iran. Despite the cooling of political relations, Turkish-Iranian trade continues to boom. Ankara steadfastly insists on only the minimum required enforcement of UN sanctions, which it opposed last year as a nonpermanent member of the UN Security Council.
"Turkey was the biggest factor helping and assisting the Iranian regime to survive [sanctions]," claims Iran expert Mehrdad Emadi of the British-based consultancy firm Betamatrix. "Actually, Turkey is the key player. Turkey is facilitating and accommodating the regime in Tehran on so many levels. We know of at least 11 cases where Turkish banks and firms, Turkish shipping companies, on behalf of the regime in Tehran have been acquiring commodities and technologies that Iran needs."
But Iran's increasing economic and financial dependence on Turkey means Tehran has limited scope to maneuver against the growing diplomatic threat Ankara now poses, Assadi believes. "Iran is isolated," he says. "Iran needs Turkey much more than they need Iran, and the Iranian press are going to criticize Turkey. However, they are going to accept whatever Turkey says. They don't have any option."
But the price for Ankara of that leverage over Tehran is growing criticism from its Western allies, in particular the United States. Turkish Foreign Minister Ahmet Davutoglu last weekend said U.S. President Barack Obama and Erdogan recently clashed over Turkey's economic relations with Iran. According to former diplomat Ulgen, Ankara's Western allies, like Iran, have to understand they are now dealing with a new Turkey.
"This transformation from almost a compliant member of the Western community to an assertive, ambitious regional power is what we are seeing today," Ulgen says. "And this has both a soft-power dimension but it also has a hard power dimension. Therefore the two sides -- being NATO partners and strategic allies -- have to find ways to accommodate these aspirations and new assertiveness that Turkey has in its foreign policy. So yes, Turkey is going to be an uneasy partner, but it will remain a partner."
Turkey's loyalties over Iran are set to be tested again, with Washington pushing for tough sanctions against Tehran over its alleged plot to kill the Saudi ambassador in the United States. For now, Ankara has refused to comment on the issue.