WASHINGTON (Reuters) - A Senate panel will consider legislation this week that would expand economic and trade sanctions against Iran days after Tehran test-fired missiles it said could reach U.S. assets in the region.

The top Republican and Democrat on the Senate Banking Committee said on Tuesday they agreed on legislation to widen sanctions in response to Washington's concern about weapons proliferation and Iran's support for Islamist militants in the Middle East.

"This bipartisan bill strengthens economic sanctions against Iran, and authorizes divestment from companies that do business with Iran's key oil sector to increase pressure on its government to meet the demands of the international community," said Democratic Sen. Chris Dodd, chairman of the Senate panel.

"It also helps to prevent the illegal diversion of sensitive U.S. technologies to Iran," he said.

Last week, Iran test-fired missiles and warned the United States it was ready to retaliate for any attack over its disputed nuclear projects.

The U.S. Treasury has applied sanctions to a broad range of companies and financial institutions in Iran in an effort to cut off funding to Tehran's nuclear program.

The United States and others accuse Iran of seeking nuclear weapons under the cover of a civilian nuclear energy program. Tehran denies the charge.

Those sanctions also applied to firms and government entities involved in developing missiles capable of delivering weapons of mass destruction.

The proposed legislation would expand the definition of "petroleum resources" under law to include oil and liquid natural gas pipelines, oil and liquid natural gas tankers, and products used to construct or maintain them.

The bill would also widen the circle of people whose funds and assets could be frozen.

The legislation would also encourage state and local governments to divest from any company that invests $20 million or more in Iran's energy sector or extends $20 million or more in credit for investment in that sector.

Provisions in the bill also seek to strengthen efforts to prevent illegal diversion of sensitive technologies to Iran.

The banking panel will consider the legislation on Thursday.