By Fredrik Dahl
VIENNA (Reuters) - Iran has halted its most disputed nuclear activity under a ground-breaking deal with six world powers, a confidential U.N. atomic agency report obtained by Reuters showed, paving the way for the easing of some Western sanctions against Tehran.
The report by the International Atomic Energy Agency also said Iran had begun diluting its stockpile of uranium enriched to the fissile concentration of 20 percent - a level that took it closer to the capability of producing fuel for an atom bomb.
Iran was also continuing to convert some of this reserve into oxide for producing reactor fuel, the IAEA said, making the material less suitable for any attempt to manufacture bombs. Iran says its nuclear program is entirely peaceful.
The IAEA will play a pivotal role in checking that Iran lives up to its part of the interim accord by curbing uranium enrichment in exchange for some relaxation of international sanctions that are severely damaging its oil-dependent economy.
It has had one to two teams of two inspectors each on the ground in Iran virtually every day of the year to check there is no diversion of nuclear materials, but that number will now increase significantly.
The inspection presence in Iran will "roughly double" in order to monitor the implementation of Tehran's agreement with the powers, chief IAEA inspector Tero Varjoranta said.
Confirming a Reuters report on Friday, he told reporters the IAEA's extra workload would cost around 6 million euros, much of which will need to be funded by IAEA member states.
Varjoranta, IAEA deputy director general for safeguards, said the U.N. agency's work to verify that Iran had carried out the agreed steps on Monday went "very well ... we could do our work in a very effective manner".
Iran's envoy to the IAEA, Reza Najafi, said there had been a "good start" and that Tehran was looking forward to the powers easing sanctions on the Islamic Republic.
The IAEA report to member states said: "The Agency confirms that, as of 20 January 2014, Iran ... has ceased enriching uranium above 5 percent U-235 at the two cascades at the Pilot Fuel Enrichment Plant (PFEP) and four cascades at the Fordow Fuel Enrichment Plant (FFEP) previously used for this purpose."
It was referring to the Iran's two enrichment plants, at Natanz and Fordow. Cascades are interlinked networks of centrifuge machines that refine uranium.
Iran has been enriching uranium to 20 percent concentration of the fissile U-235 isotope since early 2010, stoking Western alarm over the nature of its nuclear program.
While that activity has now stopped, it will continue to produce lower-level uranium with an enrichment level of up to 5 percent under the nuclear agreement with the six world powers - the United States, France, Britain, Germany, China and Russia.
NO ARAK "ADVANCES"
The IAEA report also listed other measures Iran had agreed to take under the six-month accord. Those included an undertaking that it would not build any more enrichment sites during the next half year, when Iran and the powers will seek to negotiate a final settlement of Tehran's decade-old nuclear stand-off with the powers.
Enriched uranium can have both military and civilian purposes. Iran denies Western allegations that it has been seeking to develop the capability to make nuclear bombs, saying it wants only to generate electricity from enrichment.
The IAEA report also said Iran was, as of January 20, not "conducting any further advances" to its activities at the Arak heavy water research reactor, a plant under construction that could yield plutonium as an alternative fuel for atomic bombs once it is operational. Iran denies any such goal.
In a January 18 letter to the Vienna-based IAEA, Iran had enclosed information on centrifuge assembly workshops, storage facilities and centrifuge rotor production workshops, the report added.
"The Agency and Iran have also agreed on arrangements for increased access by agency inspectors to the nuclear facilities at Natanz and Fordow, including in relation to weekends and holidays in Iran," the IAEA said.
(Editing by Mark Heinrich)