Iran will in the near future start enriching uranium deep inside a mountain, a senior official said, a move likely to further antagonise Western powers which suspect Tehran is seeking nuclear weapons capability.
A decision by the Islamic Republic to conduct sensitive atomic activities at an underground site - offering better protection against any enemy attacks - could complicate diplomatic efforts to resolve the long-running row peacefully.
Iran has said for months that it is preparing to move its highest-grade uranium refinement work to Fordow, a facility near the Shi'ite Muslim holy city of Qom in central Iran, from its main enrichment plant at Natanz.
The United States and its allies say Iran is trying to build bombs, but Tehran insists its nuclear programme is aimed at generating power and for medical purposes.
The Fordow nuclear enrichment plant will be operational in the near future, the head of Iran's Atomic Energy Organisation, Fereydoun Abbasi-Davani, said.
Uranium refined to purity levels of both 3.5 percent and 20 percent can be produced at the site, he added in comments carried by Iran's Kayhan newspaper on Sunday.
One Western official said with the start-up of Fordow, Iran would send a political signal to show it will not bow to international demands to suspend uranium enrichment, activity which can have both civilian and military uses.
The West has imposed increasingly tight economic sanctions on Tehran over its nuclear programme, culminating with a new law signed on New Year's Eve by U.S. President Barack Obama aimed at preventing buyers from paying for Iranian oil.
I would see it as another escalatory step on the Iranian side, the official, who declined to be named, said.
As the sanctions pressure mounts on the major oil producer, Iran has called for fresh talks on its nuclear programme with the permanent members of the Security Council and Germany (P5+1), which have been stalled for a year.
CLOSER TO WEAPONS MATERIAL
Western powers have repeatedly made clear they are also ready for renewed diplomacy, but stress that Iran must show it is willing to engage in meaningful discussions and start addressing growing international concerns about its work.
They have to demonstrate they are going to be serious, the Western official said, speaking prior to Iran's latest announcement on Fordow's planned inauguration.
Diplomats in Vienna, home to the International Atomic Energy Agency (IAEA), the U.N. nuclear watchdog, told Reuters on Friday that Iran was believed to have begun feeding uranium gas into centrifuges in Fordow in late December as part of final preparations to use the machines for enrichment.
The centrifuges and other equipment needed to start enrichment were installed at Fordow last year.
Iran is already refining uranium to a fissile purity of 20 percent - far more than the 3.5 percent level usually required to power nuclear energy plants - above ground at Natanz.
The country said last year it would move this higher-grade enrichment to Fordow, which like other Iranian nuclear sites is regularly inspected by the IAEA, and also sharply boost output capacity.
The United States and Israel, Iran's arch foes, have not ruled out strikes against the Islamic state if diplomacy fails to resolve the dispute.
Iran disclosed the existence of Fordow to the IAEA only in September 2009 after learning that Western intelligence agencies had detected it.
Tehran says it will use 20 percent-enriched uranium to convert into fuel for a research reactor making isotopes to treat cancer patients, but Western officials say they doubt that the country has the technical capability to do that.
In addition, they say, Fordow's capacity - a maximum of 3,000 centrifuges - is too small to produce the fuel needed for nuclear power plants, but ideal for yielding smaller amounts of high-enriched product typical of a nuclear weapons programme.
Centrifuges spin at supersonic speeds, which enriches uranium by increasing the concentration of fissile isotopes.
Nuclear bombs require uranium enriched to 90 percent, but Western experts say much of the effort required to get there is already achieved once it reaches 20 percent purity, shortening the time needed for any nuclear weapons break-out.
They give different estimates of how quickly Iran could assemble a nuclear weapon if it decides to do so - ranging from as little as six months to a year or more.
(Additional writing and reporting by Fredrik Dahl in Vienna; editing by Rosalind Russell)