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By ignoring the deadline, Tehran reaffirmed its rejection of a mid-2006 offer by six world powers of talks on trade benefits provided it halted enrichment, a process that can yield nuclear power plant fuel or bombs.

The International Atomic Energy Agency said in a report Iran had installed two cascades, or networks, of 164 centrifuges in its underground Natanz enrichment plant with another two cascades close to completion.

That amounted to an effort to escalate research-level enrichment of nuclear fuel into "industrial-scale" production.

"Iran has not suspended its enrichment-related activities," said the confidential IAEA report, obtained by Reuters.

The UN Security Council imposed sanctions in a December 23 resolution that banned transfers of atomic technology and know-how to Iran. The resolution authorized the council to take further measures if Iran flouted the deadline.

Additional penalties might include a travel ban on senior Iranian officials and restrictions on non-nuclear business.

US Undersecretary of State Nicholas Burns said he would travel to London on Monday for a meeting of the Security Council's permanent five members and Germany to begin drafting a second sanctions resolution.

"We expect to see Iran repudiated again by the Security Council," Burns said during an appearance at the Carnegie Endowment for International Peace think tank in Washington.

Although Russia's UN envoy earlier questioned the usefulness of a second resolution, Burns said Secretary of State Condoleezza Rice had good discussions in Berlin on Thursday with Russia's foreign minister and senior European officials and they "agreed the logical next step is to write a second Security Council resolution."

Burns predicted the drafting would go quickly, even though it took major powers several months of bitter wrangling to agree on the first resolution.

He added that the major powers' offer of economic and political benefits if Iran halted enrichment remained available.

DEFIANT

The Islamic Republic, which says its nuclear fuel program is only for electricity production, remained defiant.

"Regarding the suspension mentioned in the report, because such a demand has no legal basis and is against international treaties, naturally, it could not be accepted by Iran," Mohammad Saeedi, deputy head of Iran's Atomic Energy Organization, told Reuters in Tehran.

He said the report showed the best way to resolve the dispute was negotiations.

Analysts say harsher sanctions could face serious obstacles, as Russia, China and some EU powers prefer further dialogue with Iran to Washington's push to isolate and punish.

The United States has built up aircraft carrier strike forces in the Gulf as a warning to Iran.

The report said Iranian workers lowered into the Natanz plant an 8.7-tonne container of uranium hexafluoride gas (UF-6) to prepare to feed centrifuges, which purify the material into power plant fuel or, if refined to high levels, for bombs.

A senior UN official said two cascades were being test-run in a vacuum and Iran told the IAEA it would start feeding those cascades with UF-6 by month's end.

Iran intends to have 3,000 centrifuges, divided into 18 cascades, installed and brought "gradually into operation" by May. That would lay the basis for "industrial-scale" fuel production involving some 54,000 such machines.

Analysts said that was proof Iran was accelerating its program to strengthen its hand in any future negotiations with the West.

"What I would say is that it's now trying to give the impression that it can move quickly to install a large number of cascades and enrich uranium. ... We'll see what happens, but I would say that they're enriching uranium faster than commonly expected," said David Albright, director at the Institute for Science and International Security.

The report said Iran remained far away from enriching uranium in quantities suitable for use in nuclear energy plants.

Given quality-control problems and inexperience, Iran probably remains three to 10 years away from accumulating enough high-enriched uranium for the core of atom bombs -- assuming it wants them, intelligence estimates and independent analysts say.