The UN atomic agency said Monday that Iran is now enriching uranium at a new site in a hard-to-bomb mountain bunker, in a move set to stoke Western suspicions further that Tehran wants nuclear weapons.

US State Department spokeswoman Victoria Nuland said that Iran's enriching uranium to 20 percent at the Fordo site was "a further escalation of their ongoing violations with regard to their nuclear obligations."

The Islamic republic admitted the existence of the previously secret facility in 2009 and earlier International Atomic Energy Agency reports had said that Iranian scientists were preparing to begin operating the facility's centrifuges.

Iran, which insists its nuclear programme is for exclusively peaceful purposes, has repeatedly said it will not abandon uranium enrichment despite four rounds of UN Security Council resolutions calling on Tehran to desist.

While nuclear energy plants need fuel enriched to 3.5 percent, Iran says the 20-percent enriched uranium is necessary for its Tehran research reactor to make isotopes to treat cancers.

Western powers, however, reject this, believing Iran has been researching ways to develop and deliver nuclear weapons, and has piled on sanction after sanction to try to halt the work.

IAEA spokeswoman Gill Tudor said that all nuclear material "remains under the Agency's containment and surveillance" at Fordo.

But the fear is if Iran decided to expel IAEA inspectors and enrich uranium to weapons-grade purity of 90 percent, the all-but-impregnable Fordo would enable them to produce enough fissile material in a short space of time.

"This clearly represents an escalation," Mark Hibbs from the Carnegie Endowment for International Peace think-tank told AFP.

"Israel, which has already warned Iran that it could take military action against installations is very very worried by this facility ... We are moving into dangerous territory," Hibbs said.

"At a time when the international community is asking Iran to provide assurances of the peaceful nature of its programme, this is a provocative act which further undermines Iran's claims that its programme is entirely civilian in nature," British Foreign Secretary William Hague said.

Germany said that "the international community's concern that the Iranian nuclear programme is serving military purposes is growing."

Experts point out that the process of obtaining 20 percent enriched uranium represents most of the work needed to get the uranium enriched to the level of 90 percent or above required for atomic weapons.

The Fordo news "is worrisome because 20 percent is so close to being weapons-usable and because there is absolutely no civilian need for it now," Mark Fitzpatrick from the International Institute for Strategic Studies (IISS) said.

"It brings them closer to being able to quickly produce enough fissile material for a nuclear weapon," the London-based analyst told AFP.

Fordo, a reinforced facility sunk deep under a mountain 150 kilometres (90 miles) southwest of Tehran, is designed to be difficult if not impossible target to bomb.

Enriching uranium is one of three main areas needed to develop a nuclear arsenal. Iran would also need to make the enriched uranium weapons-ready in a warhead and manufacture a missile to carry it to target.

A report from the IAEA in November, the agency's hardest-hitting to date, included evidence that Western powers said confirmed Iranian efforts in these other two areas, stoking speculation of a possible Israeli air strike.

The United States, the European Union and other allies have sought to tighten the screw since the report -- which Iran dismissed as "baseless" -- by targeting Tehran's crucial oil sector and its central bank.

Tensions have also been stoked by Iran showing off what it said was a CIA drone it captured using cyberwarfare, while in October Washington alleged Iranian involvement in a suspected plot to assassinate the Saudi ambassador to the US.

Iran, where a judge on Monday reportedly sentenced to death a US-Iranian former Marine for "membership of the CIA", has threatened to close the Strait of Hormuz, a chokepoint for 20 percent of the world's oil.

US Defense Secretary Leon Panetta warned on Sunday that any such move would cross a "red line" and "we would take action and reopen the strait."

Iran's supreme leader Ayatollah Ali Khamenei said that Tehran will not bow to sanctions, in comments broadcast on state television on Monday.

"While the Iranian people have travelled the road to success and see the signs of new victories to come, the (Western) oppressor is trying to frighten the Iranian people and officials by brandishing the threat of sanctions," he said.