The UN nuclear watchdog yesterday said Iran was flouting international demands and stepping up a uranium enrichment programme the West fears is aimed at nuclear arms production.
The accusation, in a report by the International Atomic Energy Agency (IAEA), came on the day nine US warships sailed into the Gulf to demonstrate American impatience with Tehran which it also accuses of backing insurgents in Iraq.
Iran's defiance of another 60-day deadline for it to stop enrichment, set by the Council when it imposed a second set of sanctions on March 24, exposes Tehran to tougher penalties.
"Iran has not suspended its enrichment-related activities. Iran has continued with operation of its pilot fuel enrichment plant and with construction of its (planned industrial) enrichment plant," said the report, obtained by Reuters.
In response, Iran said it remained committed to the nuclear Non-Proliferation Treaty (NPT), which the West suspects it is violating by using a declared civilian nuclear programme as a façade for mastering the means to make atom bombs.
"Iran is still loyal to its commitment in carrying out the NPT," Iranian state television quoted chief nuclear negotiator Ali Larijani as saying.
Iran insists it seeks to use nuclear technology only for power generation. Enriched uranium can be used for nuclear power plants or, in a highly enriched state, for bombs.
Six world powers stand behind UN Security Council resolutions demanding Iran suspend all nuclear fuel work in exchange for negotiations on trade incentives, with the threat of escalating sanctions if Tehran keeps refusing.
In Washington, a White House spokesman called the new IAEA report "a laundry list of Iran's continued defiance of the international community and (it) shows that Iran's leaders are only furthering the isolation of the Iranian people".
US officials had said the powers would start drafting a third, harsher batch of sanctions if the deadline was flouted.
A spokesman for British Prime Minister Tony Blair said existing sanctions, which have begun to deter Western investment in Iran, had stirred debate there about the wisdom of total defiance. "We believe... a process of, if necessary, further tightening those sanctions will deliver further results."
But a senior European diplomat at the Security Council said: "I don't think we'll rush at it". He said he expected the Council would await the outcome of high-level exploratory talks on the nuclear issue between the EU and Iran next week.
Washington underlined impatience with Tehran by sending nine US warships carrying 17,000 personnel into the Gulf, a narrow channel in international waters off Iran's coast and a crucial artery for global oil shipments. Oil rose towards $70 on world markets, partly on news of the force's arrival.
The US navy said the ships, including two aircraft carriers, would conduct exercises under a long-planned effort to reassure local Arab allies of US commitment to Gulf security.
In response, Iran said it would powerfully resist any threat from the United States.
The US has said it is committed to a diplomatic solution but has not ruled out military intervention. Diplomatic efforts, however, have faltered and Western relations with the IAEA have been strained by recent comments by its director.
Last week Mohamed ElBaradei said the Western strategy of denying Iran enrichment capability was obsolete as Iran had already gained it. He said world powers should focus on capping Iran's enrichment short of "industrial scale", a level he feels would pose a minimal risk of yielding atomic bombs.
In Washington, a senior US official dismissed the proposal as a non-starter; one that Western experts believe would still allow Iran to perfect the technology and eventually stockpile enough enriched uranium for possible diversion to bomb making.
"We are not going to agree to accept limited enrichment, to accept 1,300 centrifuges can continue spinning at their plant at Natanz," said US Undersecretary of State Nicholas Burns.
US and major European envoys plan to visit Mr ElBaradei later this week to formally complain about his suggestion.
The IAEA report said Iran had installed 1,640 centrifuges to enrich uranium and was feeding uranium "UF6" gas into some 1,300 of the spinning, cylindrical machines for enrichment.
This marked progress towards a basis for a nuclear fuel industry after the shift from a research-level programme a few months ago. Another 300 centrifuges were being test-run without UF6 inside and about 500 were under construction, it said.