By Parisa Hafezi and Louis Charbonneau
VIENNA (Reuters) - A dispute over U.N. sanctions on Iran's ballistic missile program and a broader arms embargo were among issues holding up a nuclear deal between Tehran and six world powers on Monday, the day before their latest self-imposed deadline.
"The Iranians want the ballistic missile sanctions lifted. They say there is no reason to connect it with the nuclear issue, a view that is difficult to accept," one Western official told Reuters. "There's no appetite for that on our part."
Iranian and other Western officials confirmed this view as the foreign ministers of the six powers - Britain, China, France, Germany, Russia and the United States - gathered in Vienna to try to strike a deal with Iran by Tuesday night.
"The Western side insists that not only should it (ballistic missiles) remain under sanctions, but that Iran should suspend its program as well," an Iranian official said.
"But Iran is insisting on its rights and says all the sanctions, including on the ballistic missiles, should be lifted when the U.N. sanctions are lifted."
Separately, a senior Iranian official told reporters in Vienna on condition of anonymity that Tehran wanted a United Nations arms embargo terminated as well.
The West wants to keep the arms embargo in place and a senior Western diplomat said a removal was "out of the question".
The deal under discussion is aimed at curbing Tehran's most sensitive nuclear work for a decade or more, in exchange for relief from sanctions that have slashed Iran's oil exports and crippled its economy.
The United States and its allies fear Iran is using its civilian nuclear program as a cover to develop a nuclear weapons capability. Iran says its program is peaceful.
An agreement would be the most important milestone in decades towards alleviating hostility between the United States and Iran, enemies since Iranian revolutionaries captured 52 hostages in the U.S. embassy in Tehran in 1979.
It could also reduce the odds of any military strike against Iran's nuclear facilities, something Washington has refused to rule out, and the possibility of a wider war in the Middle East, where conflicts already rage in Iraq, Syria and Yemen.
Iranian Foreign Minister Mohammad Javad Zarif told reporters on Monday that "some differences remain and we are trying and working hard".
If there is a nuclear deal, it will include a draft U.N. Security Council resolution that, once adopted, would terminate all U.N. nuclear-related sanctions while simultaneously re-imposing other existing restrictions on Iran.
The six powers argue that removing those measures could further destabilize the region.
The negotiations are a major initiative both for the administration of U.S. President Barack Obama and for Iran's pragmatic elected president, Hassan Rouhani, both of whom face scepticism from powerful hardliners at home.
U.S. Secretary of State John Kerry said on Sunday that an agreement was possible this week if Iran made "hard choices", but that the United States was also ready to walk away from a deal it considered inadequate.
Chinese Foreign Minister Wang Yi also said an agreement was within reach.
An Iranian official told the semi-official Tasnim news agency that the talks could continue until July 9, echoing some Western diplomats. Kerry said negotiators were still aiming for July 7, the date they set when they missed a June 30 deadline.
Obama must submit the deal to the U.S. Congress by July 9 in order to get an accelerated 30-day review. If it is submitted later, the Republican-led Congress would have 60 days to review it, bringing more opportunities for the deal to unravel.
Kerry and Zarif held a string of meetings on Sunday, trying to overcome remaining differences, including how to lift United Nations sanctions and what advanced research and development Iran may pursue. Foreign ministers of the other powers started to return to Vienna on Sunday to help push for a swift deal.
In parallel with the powers' talks, delegates from the International Atomic Energy Agency (IAEA) were due to hold talks with Iranian officials in Tehran on Monday, following a visit from IAEA chief Yukiya Amano last week.
The powers want Iran to grant more access to IAEA inspectors and to answer its questions about previous nuclear work that may have had military purposes.
(Writing by Parisa Hafezi, Louis Charbonneau and Arshad Mohammed; Additional reporting by John Irish and Arshad Mohammed in Vienna; Editing by Kevin Liffey)