LONDON (Agencies) - The fate of a young American journalist sentenced to eight years imprisonment for spying against Iran has plunged Washington into a fresh crisis with Tehran, damaging hopes for Barack Obamas reconciliation bid with the Islamic regime. Roxana Saberi, 30, a dual American-Iranian national from North Dakota, was found guilty of espionage in a secret court hearing and given the lengthy sentence to be served in Tehrans notorious Evin prison. Western diplomats in Tehran and Iranian reformers were deeply sceptical about the trial, suggesting that it could be politically motivated. There are suspicions that hardliners in the regime want to use the case to torpedo the peace initiative announced last month by President Obama in a broadcast coinciding with the Iranian New Year. Another interpretation is that Iran wants a bargaining chip to use with the Americans. Certainly the case will make it much harder for Obama to patch up relations with Iran, ruptured 30 years ago during the Iranian revolution when student activists seized the US Embassy in Tehran and held American diplomats hostage for more than a year. Meanwhile, US President Barack Obama denied an Iranian-American journalist was a spy and demanded her release. She is an American citizen and I have complete confidence that she was not engaging in any sort of espionage, Obama told reporters at the end of a Summit of the Americas at Port of Spain. She was an Iranian-American who was interested in the country which her family came from, and it is appropriate for her to be treated as such and to be released. Earlier, Irans President Mahmoud Ahmadinejad called on Sunday for fair treatment of US reporter Saberi, Irans state news agency IRNA reported. In his first such intervention in judicial proceedings, Ahmadinejad told the Tehran prosecutor to examine the cases against both Saberi and an Iranian-Canadian blogger who has been behind bars since November, IRNA said. At the Presidents insistence, you must do what is needed to secure justice ... in examining these peoples charges, said a letter from Ahmadinejads chief of staff Abdolreza Sheikholeslami to prosecutor Saeed Mortazavi. The Tehran prosecutor would have a key role in the appeal process as a representative of the state. Take care that the defendants have all the legal freedoms and rights to defend themselves against the charges, the letter said. Saberis lawyer has said he would appeal the verdict, which is the harshest sentence ever to a dual national on security charges in Iran. She has been held since late January, when she was initially reported to have been arrested for buying alcohol, an illegal act in the Islamic republic. Hossein Derakhshan, a prominent Iranian-Canadian blogger, has been detained since his arrival in Iran in November 2008 and is being investigated on charges of insulting Shiite imams.