By Fredrik Dahl
VIENNA (Reuters) - Iran has started refining uranium deep inside a mountain, diplomatic sources said on Monday, a move likely to exacerbate a dispute with Western powers that suspect Tehran is seeking a nuclear weapons capability.
The sources said uranium enrichment to a fissile purity of 20 percent had begun at the Fordow underground site near the Shi'ite Muslim holy city of Qom, signaling Iran's defiance in the face of intensifying Western pressure to curb such activity.
"Yes, they have," one Vienna-based diplomat said in response to a question on whether the enrichment operations had begun.
Iran has said for months that it is preparing to move its highest-grade uranium refinement work to Fordow from its main enrichment plant at Natanz, and sharply boost capacity. Enriched uranium can have both civilian and military uses.
News that it has now launched the work at Fordow underlines the Islamic Republic's determination not to back down despite increased Western sanctions on the world's No. 5 oil producer.
"The start of 20 percent enrichment at Fordow certainly raises the stakes," said nuclear expert Mark Fitzpatrick at the International Institute for Strategic Studies think tank.
"Iran will now be producing nearly weapons-usable fissile material in centrifuges that are out of harm's way inside the mountain," he said of the remote site believed to be buried beneath 80 meters (265 feet) of rock and soil.
In Tehran on Monday, Supreme Leader Ayatollah Ali Khamenei said that Iran would not yield to the West's pressure to get the country to change its nuclear course.
An Iranian decision to conduct sensitive atomic activities at the underground site - offering better protection against any enemy attacks - could complicate diplomatic efforts to resolve the long-running stand-off peacefully.
Iran's mission to the International Atomic Energy Agency, the Vienna-based U.N. nuclear watchdog, was not immediately available for comment.
On Sunday, an Iranian newspaper quoted the head of Iran's Atomic Energy Organisation as saying Iran would in the "near future" start enriching uranium at Fordow.
The United States and its allies say Iran is trying to develop the means to make atomic bombs, but Tehran insists its nuclear program is aimed at generating electricity and isotopes for medical treatment.
As the sanctions pressure mounts, Iran has called for fresh talks on its nuclear program with the permanent members of the Security Council and Germany (P5+1). Such talks have been stalled for a year.
Western powers have repeatedly made clear they are also ready for renewed diplomacy, but stress that Iran must show it is willing to engage in meaningful discussions and start addressing growing international concerns about its work.
CLOSER TO WEAPONS MATERIAL
Iran is already refining uranium to a fissile purity of 20 percent - far more than the 3.5 percent level usually required to power nuclear energy plants - above ground at Natanz.
The country said last year it would move this higher-grade enrichment to Fordow, which like other declared Iranian nuclear sites is regularly inspected by the IAEA, and also sharply boost output capacity.
The centrifuges and other equipment needed to start enrichment were installed at Fordow last year, with initially two cascades, or interlocked networks, of 174 machines each deployed for 20 percent enrichment.
The United States and Israel, Iran's arch foes, have not ruled out strikes against the Islamic state if diplomacy fails to resolve the dispute.
Iran disclosed the existence of Fordow to the IAEA only in September 2009 after learning that Western intelligence agencies had detected it.
Tehran says it will use 20 percent-enriched uranium to convert into fuel for a research reactor making isotopes to treat cancer patients, but Western officials say they doubt that the country has the technical capability to do that.
In addition, they say, Fordow's capacity - a maximum of 3,000 centrifuges - is too small to produce the fuel needed for nuclear power plants, but ideal for yielding smaller amounts of high-enriched product typical of a nuclear weapons program.
Centrifuges spin at supersonic speeds, enriching uranium by increasing the concentration of fissile isotopes.
Nuclear bombs require uranium enriched to 90 percent, but Western experts say much of the effort required to get there is already achieved once it reaches 20 percent purity, shortening the time needed for any nuclear weapons "break-out."
They give different estimates of how quickly Iran could assemble a nuclear weapon - ranging from as little as six months to a year or more.
Western officials believe Iran has not yet decided whether it will indeed "weaponise" enrichment, but rather is seeking now solely to establish the industrial and scientific capacity to do so if needed for military and security contingencies.
(Editing by Mark Heinrich)