China's Foreign Ministry said on Thursday that sanctions cannot fundamentally resolve the Iran nuclear dispute, after Western leaders urged expanded sanctions against Iran over a U.N. watchdog report that Tehran has worked to design atom bombs.

We always believe that dialogue and cooperation is the right way to solve the Iranian nuclear issue. Sanctions cannot fundamentally solve the issue, Chinese Foreign Ministry spokesman Hong Lei said.

The pressing task now is all parties concerned step up diplomatic efforts, Hong added.

International Atomic Energy Agency (IAEA) concluded in a report this week that Iran appears to have worked on designing an atomic weapon.

We hope the IAEA will be fair and objective, and actively committed to clarifying the salient issues through cooperation with Iran, he said. This is the pressing task at this stage.

The Chinese spokesman's remarks underscored the tough task facing Western governments who hope to win Beijing's backing for tougher United Nations sanctions on Iran.

But Hong's words fell short of an outright no.

Beijing has said sanctions are not a fundamental answer before, when it ultimately voted for U.N. Security Council resolutions imposing sanctions on Iran for its disputed nuclear activities.

China, which has kept close ties with Iran, has also backed past U.N. Security Council resolutions criticising Iran's position on nuclear issues and authorising limited sanctions.

Iran is China's third-largest crude oil supplier, shipping 20.3 million tonnes in the first nine months of the year, up by almost a third on the same period last year, according to Chinese data.

China has repeatedly resisted Western proposals for sanctions that could seriously curtail its energy and economic ties with Iran. As one of the Security Council's five permanent members, China holds the power to veto any resolutions.

China has also denounced the United States and European Union for imposing their own separate sanctions on Iran, and said they should not take steps reaching beyond the U.N. resolutions.

Spokesman Hong warned on Wednesday against turmoil in the Middle East from action over Iran's nuclear programme.

(Reporting by Sui-Lee Wee; Writing by Chris Buckley; Editing by Yoko Nishikawa)