TEHRAN- Iran began making higher-grade nuclear fuel on Tuesday, state television reported, and the Pentagon said the United States wanted a U.N. Security Council resolution on Iran within weeks over its nuclear program.

The Islamic Republic, which denies its program 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 for cancer patients.

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.

Enrichment to 20 percent started in the Natanz facility under the supervision of the (International Atomic Energy Agency), state television quoted Iranian nuclear agency chief Ali Akbar Salehi as saying.

It said he made the statement at the site of Iran's enrichment plant in Natanz. Salehi earlier on Tuesday told Reuters that preparatory work had started and that production would officially be launched in the afternoon.

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 U.N. Security Council to approve a resolution within weeks, not months, laying the ground for new sanctions against Iran over its nuclear program. 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.

RUSSIA, CHINA DIFFER

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 U.N. 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 toward agreement on the fuel exchange plan.

This would help toward 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 program, 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 U.N. 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 U.N. 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.

(Additional reporting by Parisa Hafezi and Hossein Jaseb in Tehran and Chris Buckley in Beijing; Writing by Fredrik Dahl; editing by Dominic Evans)

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