Iran plans major nuclear fuel expansion

Tehran has also voiced readiness to send low-enriched uranium (LEU) abroad in a swap for fuel for the reactor, due to run out of it later this year. But amendments Iran has demanded to the U.N.-drafted proposal have been rejected by the United States, France and Russia, the other parties to the plan.

"Iran would halt its enrichment process for the Tehran research reactor any time it receives the necessary fuel for it," Salehi said.

IRAN'S MOVE MAY BACKFIRE, PROVOKE MORE SANCTIONS

Ahmadinejad's contradictory signals over the last week -- first expressing readiness to send low-enriched uranium abroad and then announcing that Iran would start producing 20 percent fuel itself -- may also be a sign of Iran's political turmoil.

Analysts believe Ahmadinejad may want to secure a swap deal with the international community to boost his standing and legitimacy after last year's disputed election, but is hampered by political rivals who oppose any LEU export as a threat to national security.

Iran's move to make 20 percent fuel itself may stoke suspicion that its real aim is higher-enriched uranium for atom bombs, since only France and Argentina -- not Iran -- are known to have the technology to yield fuel for medical isotopes.

A senior diplomat close to the IAEA said enrichment to 20 percent was legal under Iran's non-proliferation accord with the agency. "But what counts is design verification (the inspectors do). Higher enrichment means higher verification requirements."

"Natanz would need less than a few months to start making the 20 percent enriched uranium, (although) Iran will face significant technical hurdles in manufacturing it," said David Albright, head of the Institute for Science and International Security, a think-tank that tracks nuclear proliferation.

"The larger technical issue is whether Iran is planning to make only the small amount of enriched uranium needed for its research reactor, or is it trying to convert most of its 3.5 percent stock of enriched uranium into 20 percent material.

By doing so, it would be going most of the rest of the way to weapon-grade uranium," Albright told Reuters.