A Foreign Office spokesman said the move at Isfahan violated an agreement reached with Britain, France and Germany in November last year, when Iran suspended all activities related to uranium enrichment.
"The removal of seals has been completed. The plant is fully operational now," Mohammad Saeedi, deputy head of Iran's Atomic Energy Organisation, said.
The Foreign Office spokesman said the nuclear watchdog, meeting in emergency session in Vienna, was discussing a resolution urging Iran to resume voluntary suspension.
Western diplomats said there was no appetite among some non-nuclear states to refer Iran to the UN Security Council for sanctions. Countries such as India and Brazil "don't see why they should be referred for something they are legally entitled to do", one diplomat said, referring to Iran's right under the nuclear Non-Proliferation Treaty to develop peaceful nuclear energy.
Iran's chief delegate to the IAEA, Sirus Nasseri, said: "There is no legal base whatsoever to go to the Security Council if it is, it is by political choosing and it will be big big mistake. There is so much that we and the UK and Europe have in common ... there is so much happening in our region, in the world, in Iraq, in Afghanistan, in Lebanon."