A spokeswoman for the U.N.'s International Atomic Energy Agency (IAEA) said the uranium processing was being closely monitored by the IAEA.

"The uranium conversion is being conducted under the supervision of the IAEA," agency spokeswoman Melissa Fleming said.

The IAEA has installed monitoring cameras at the Isfahan uranium conversion facility in Iran to oversee the production of uranium hexafluoride, the feed material for centrifuges used in enrichment. The purpose of the monitoring is to ensure that nothing is secretly diverted for weapons activities.

"They (the IAEA) were aware that the production had begun," a diplomat close to the IAEA told Reuters.

It was unclear how much uranium hexafluoride Tehran has produced so far. The Isfahan plant intends to process a total of 37 tons of raw "yellowcake" uranium, which experts say could be enriched into enough material for up to five atomic weapons.

The IAEA board of governors passed a resolution last month demanding Iran freeze all activities connected with uranium enrichment, including making feed material for centrifuges.

If Tehran fails to heed the demands, the board said it would consider possible "further steps" when it meets next month. Diplomats on the board said this included possibly referring Iran to the U.N. Security Council, which can impose sanctions.

But Iran repeated it had no intention of halting any nuclear activities.

"We will continue our cooperation with the IAEA but at the same time we will not subdue ourselves or our nuclear program because of foreign pressure," Iranian President Mohammad Khatami told reporters in Khartoum during an official visit to Sudan.

"It is our duty and right to use this nuclear energy for peaceful purposes and I'd like to assure the international community that we will not go to the extent of producing nuclear weapons."