Government spokesman Ali Rabiei said Iran will go beyond the limit of 3.67 per cent enrichment and that the new level “will be based on our needs”.
It comes a year after US president Donald Trump unilaterally pulled America out of the deal.
Iran has repeatedly warned Europe in recent weeks it would begin walking away from an accord neutered by US-imposed sanctions, which have blocked Tehran’s oil sales abroad and targeted its top officials.
The decision came less than a week after Iran acknowledged breaking the deal’s 300kg limit on its low-enriched uranium stockpile.
Experts warn higher enrichment and a growing stockpile narrow the one-year window Iran would need to have enough material for an atomic bomb, something Iran denies it wants but the deal prevented.
In a last-minute diplomatic bid, French president Emmanuel Macron spoke to his Iranian counterpart, Hassan Rouhani, by phone, saying he is trying to find a way by 15 July to resume dialogue between Iran and western partners.
Hopes for saving the faltering deal appear increasingly dim, as the Europeans have been unable to offer Iran any effective way around US sanctions. While the steps are concerning to nuclear non-proliferation experts, they could be easily reversible if Europeans offer Iran the sanctions relief it seeks.
Tensions began rising in May when the US rushed thousands of additional troops, an aircraft carrier, nuclear-capable B-52 bombers and advanced fighter jets to the Middle East.
Mysterious oil tanker blasts near the Strait of Hormuz, attacks by Iranian-backed rebels in Yemen on Saudi Arabia and Iran shooting down a US military drone have raised fears of a wider conflict engulfing a region crucial to global energy supplies.
Iran’s deputy foreign minister Abbas Araqchi said a heavy water reactor in Arak will be returned to its former state if modernisations plans agreed in the deal are further delayed.
He added that the country will also enrich uranium needed for a nuclear power plant in Bushehr.
Blaming European countries for failing to live up to their commitment to the deal, he said Iran wanted to salvage the agreement.
The US also sanctioned top officials in the Islamic republic, including supreme leader Ayatollah Ali Khamenei.
Mr Rabiei also told a news conference that “today we will pass” the permitted enrichment level of 3.67 per cent, but did not provide details.
Additional reporting by agencies
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