The appointment of Hassan Diab would yield a lopsided government that might fuel sectarian tensions and complicate efforts to secure international aid, observers said.
US sanctions and a trade embargo ban the supply of US products to Iran without specific permission from the US Treasury.
The militia must make the most of recent peace overtures by severing its ties with Iran and pursuing a reconciliation agreement.
If the militia does not engage in the peace process more seriously, the people and achievements of Yemen will continue to be at risk.
The move represents a flagrant violation of diplomatic norms and Yemen's sovereignty, according to Arab officials.
Sanctions have been imposed on Mahan Air offices and companies used by the IRGC's Quds Force to send weapons to Yemen's Houthis.
In the year since the agreement was signed, the Iran-backed militia has committed some 12,000 violations in order to further Iran's agenda.
The two-day annual summit brought together rulers and representatives of the six GCC member states in the Saudi capital Riyadh.
New International Atomic Energy Agency director general warns that the agency's inspectors 'should not be intimidated... in any way'.
The Iran-backed militia fears an outbreak of street protests similar to those that have rocked Iraq and Lebanon in recent weeks.