World powers condemned Iran just days before talks on its controversial nuclear programme, after an IAEA report said it had begun installing advanced equipment at one of its main nuclear plants.
"On 6 February 2013, the Agency observed that Iran had started the installation of IR-2m centrifuges" at the Natanz plant, the International Atomic Energy Agency report said.
"This is the first time that centrifuges more advanced than the IR-1 have been installed" at the plant in central Iran, the UN atomic watchdog added.
One official said Iran intended to install around 3,000 of the new centrifuges at Natanz enabling it to speed up the enrichment of uranium.
This process is at the heart of the international community's concerns about Iran's nuclear programme, since highly enriched uranium can be used in a nuclear weapon.
The US State Department denounced the development as "yet another provocative step" by Iran and White House spokesman Jay Carney warned Tehran it had a choice.
"If it fails to address the concerns of the international community, it will face more pressure and become increasingly isolated," he said Thursday.
"The burden of sanctions could be eased, but the onus is on Iran to turn its stated readiness to negotiate, into tangible action."
Britain expressed "serious concern".
Israel, the Middle East's sole if undeclared nuclear-armed state, warned that Tehran was "closer than ever" to achieving the amount of enriched uranium to make a nuclear bomb.
The report was "severe" and "proves Iran is continuing to rapidly advance to the red line" that Prime Minister Benjamin Netanyahu has said the international community must draw to prevent Iran obtaining an atomic weapon, Netanyahu's office said.
Israel has refused to rule out bombing Iran's nuclear facilities.
Despite the developments at Natanz, the IAEA's quarterly report seen by AFP also noted that Iran had not started operating any new equipment at its Fordo plant.
Fordo is of more concern to the international community, since it is used to enrich uranium to fissile purities of 20 percent: at Natanz it is mostly to five percent.
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The ability to enrich to 20 percent is technically speaking considerably closer to 90 percent, the level needed for a nuclear weapon.
Iran has so far produced 280 kilograms (617 pounds) of 20-percent uranium, of which around 110 kilos have been diverted to fuel production, the new report said.
Experts say that around 250 kilos are needed for one bomb, although creating a weapon requires several other steps and if Iran were to start further enriching to weapons-grade this would be detected by the IAEA.
Iran denies seeking atomic weapons but many in the international community suspect otherwise, The UN Security Council has passed several resolutions calling on Iran to suspend all uranium enrichment.
The IAEA report came ahead of a new meeting between Iran and six world powers -- the US, China, Russia, Britain, France and Germany -- in Kazakhstan on February 26.
These will be the first talks between the parties since three rounds of meetings ended in stalemate in Moscow last June.
The so-called P5+1 called on Iran to suspend all 20-percent enrichment, shut down Fordo and export its 20-percent stockpile.
But they stopped short of offering Tehran substantial relief from UN Security Council and unilateral Western sanctions that last year began to cause major economic problems for the Gulf country.
A Western diplomat said Wednesday that the P5+1 would come to Almaty with an offer containing "significant new elements".
Reports have said that the powers could ease sanctions on Iran's trade in gold and other precious metals.
On Thursday, US State Department spokeswoman Victoria Nuland urged Iran to consider "another path" than the nuclear bomb.
"They have an opportunity to come to those talks ready to be serious, ready to allay the international community's concerns, and we hope they take that opportunity," she said.
Parallel efforts by the IAEA dating back more than a year to press Iran to grant it access to sites, documents and scientists involved in what the agency suspects were past efforts to develop nuclear weapons remain stalled.
The new report said that although the IAEA board had adopted two resolutions on the urgent need to resolve these issues with Iran, they had not been able to reach agreement with Tehran on the way forward.
It added however that the Vienna-based IAEA's "commitment to continued dialogue is unwavering".