VIENNA (Reuters) - Iran could soon increase uranium enrichment in an underground nuclear plant, diplomats say, a development that may further complicate efforts to resolve peacefully a dispute over Tehran's atomic ambitions.
Iran has nearly finished installing centrifuges at the Fordow enrichment plant buried deep inside a mountain and is believed to be in a position in the near future to significantly step up production there of material that could be used for bombs if processed further, they said.
"They should be able to (increase production) within a few weeks," one diplomat accredited to the Vienna-based U.N. International Atomic Energy Agency (IAEA) said on Thursday.
Fordow is of particular concern for the West as Iran uses the facility to refine uranium to a fissile concentration of 20 percent, a short technical step from bomb-grade material.
The fact that it is buried deep underground also makes it less vulnerable to any air strikes, which Israel has threatened if diplomacy fails to stop Iran getting nuclear weapons capability.
Tehran denies it is seeking such a thing, saying its program is entirely peaceful. But U.N. inspectors suspect past, and possibly ongoing, military-related nuclear work.
The IAEA is likely to submit its next quarterly Iran report to member states on Friday, 10 days after President Barack Obama's re-election raised hope of a revival of diplomacy on the issue.
It is expected to show a defiant Iran pressing ahead with expanding its nuclear program, despite harsh Western sanctions targeting its vital oil sector, and continuing to sanitize a military site the IAEA wants to visit.
At Fordow, diplomats say Iran has now put in place the nearly 2,800 centrifuges it was built for, up from about 2,140 in the previous IAEA report issued in late August.
It is unclear whether the necessary piping and other infrastructure have been completed for all of the newly-installed machines. It is also not known whether Iran will use the new centrifuges to make higher-grade uranium.
Iran started producing uranium enriched to 20 percent fissile purity at Fordow, compared with the 3.5 percent level needed for nuclear energy plants, in late 2011 and has been operating 700 centrifuges there since January this year.
Obama and Iran's chief nuclear negotiator this week have separately made clear their desire to resume diplomacy that has been deadlocked since a meeting between six world powers and Iran ended without a breakthrough in June.
World powers - the United States, China, Russia, France, Germany and Britain - want Iran to halt 20 percent enrichment, close down Fordow and ship out its stockpile of the material.
Iran has signaled it may be ready to suspend the higher-grade enrichment but says sanctions in return, a demand the West rejects.
Tehran says it needs 20 percent uranium to make fuel for a medical research reactor and it has used a large part of its stockpile for that purpose, at least temporarily removing it from any quick atom bomb bid and potentially buying time for diplomacy.
(Reporting by Fredrik Dahl; Editing by Robin Pomeroy)