The comments by the country's atomic energy chief are likely to further raise tension with the West.
The statement by Ali Akbar Salehi yesterday evening comes after President Mahmoud Ahmadinejad earlier in the day instructed Iran's Atomic Energy Organisation to start work on producing higher-grade nuclear fuel for a Tehran reactor.
Iran's announcement raised the stakes in its dispute with the West, but Mr Ahmadinejad said talks were still possible on a nuclear swap offer by world powers designed to allay fears the Islamic republic is making an atomic bomb.
Mr Salehi, who heads the Atomic Energy Organisation, also said Iran would start producing uranium enriched to a level of 20%, in the presence of inspectors from the International Atomic Energy Agency.
He said Iran will formally inform the Vienna-based UN agency about the move in a letter, Iran's Arabic-language television station al-Alam reported.
He earlier said production would take place at Iran's Natanz site.
