Iran began work on today to make higher-grade nuclear fuel, a senior official said, and the Pentagon said the United States wanted a UN Security Council resolution on Iran "within weeks" over its nuclear programme.
The Islamic Republic, which denies its programme has military aims, announced on Sunday it would produce uranium enriched to a level of 20 percent for a Tehran research reactor making medical isotopes.
This followed a failure to agree terms for a proposed nuclear swap with major powers, under which Iran would send most of its low-enriched uranium abroad in return for such fuel.
The head of Iran's Atomic Energy Organisation, Ali Akbar Salehi, said preparatory work had started and production of the fuel would be officially launched later on Tuesday, in the presence of inspectors from the U.N. nuclear watchdog.
"It will formally be announced in the afternoon," Salehi told Reuters, saying he was on his way to the enrichment plant near the central city of Natanz.
State television said production had already started.
Iran currently enriches uranium to a level of 3.5 percent while 80 percent or more is needed for a nuclear bomb.
The Pentagon said the United States wants the UN Security Council to approve a resolution "within weeks, not months", laying the ground for new sanctions against Iran over its nuclear programme. They would be the fourth set of sanctions.
Despite Iranian denials, Western powers fear Iran is enriching uranium with a view to producing nuclear weapons.
Salehi said Iran had set up a chain of 164 centrifuges, used to refine uranium, to produce the 20 percent fuel. He said production capacity is 3 to 5 kg a month, above the Tehran reactor's needs of 1.5 kg, ISNA news agency reported.
A senior lawmaker in Russia, which in the past has urged talks rather than punishment, also said economic measures should be considered against Iran, a major oil producer.
Among the big powers only China, which can block any UN sanctions, has remained unswervingly opposed to punishing Iran.
On Tuesday Beijing urged increased diplomatic efforts to resolve the stand-off over Iran's nuclear plans, calling for all sides to work towards agreement on the fuel exchange plan.
"This would help towards appropriately resolving the Iran nuclear issue," Foreign Ministry spokesman Ma Zhaoxu said.
Possible targets for any new sanctions include Iran's central bank, the Revolutionary Guards who Western powers say are key to Iran's nuclear programme, shipping firms and its energy sector, Western diplomats say.
Enriching uranium to 20 percent would take Iran much of the way to having weapons-grade uranium.
But analysts said it would need a few months to reconfigure its Natanz plant to refine uranium to higher purity.
Iran may also be having more difficulty obtaining crucial components due to UN sanctions, said the analysts, who added that the latest move might be a negotiating tactic.
Tehran says the more highly refined uranium is destined for the research reactor, but it lacks the technology to convert the material into special fuel needed to run this plant in the capital.
Iran's Foreign Ministry spokesman said Tehran was still prepared to carry out the fuel swap, if its conditions were met.
On Monday, the IAEA confirmed Tehran had notified the UN nuclear watchdog of its plans to produce higher-grade fuel, and said it would damage chances of saving the fuel supply deal.
But Foreign Ministry spokesman Ramin Mehmanparast said: "We're still prepared, if our requirements are met, to carry out this swap ... any time they are ready this can be done."