By Fredrik Dahl
VIENNA (Reuters) - Iran is pressing ahead with the construction of a research reactor that Western experts say could eventually produce plutonium for a nuclear weapon if Tehran decides to make one, a U.N. report showed on Wednesday.
In another development likely to worry the United States and its allies, the U.N. International Atomic Energy Agency said Iran had added to its capacity to refine uranium, which can also provide the fissile core of a bomb if enriched to a high level.
The IAEA also said Iran had asphalted a part of a military site, Parchin, that the U.N. agency wants to visit.
That will fuel Western suspicions that Tehran is trying to remove traces of possible nuclear arms-related experiments there, perhaps a decade ago, something Iran denies.
It would now probably be "very difficult" for U.N. inspectors to find any traces at Parchin even if they were allowed access, which Iran has so far refused, one diplomat familiar with the country's nuclear program said.
The quarterly IAEA report was issued amid apparent deadlock in diplomatic efforts to resolve a decade-old dispute that threatens to trigger a new war in the Middle East.
Washington said Iran was "advancing its enrichment program in blatant violation of its international obligations".
"This report marks an unfortunate milestone with regard to Iran's illicit nuclear activities," U.S. State Department spokesman Patrick Ventrell said.
Iran denies accusations that it is seeking the capability to make nuclear weapons, saying it needs nuclear technology for energy and medical purposes and that it is Israel's arsenal that threatens peace.
Western concerns about Iran are focused largely on uranium enrichment plants at Natanz and Fordow.
But experts say the research reactor under construction near the central town of Arak may also be a proliferation issue as it could yield plutonium for nuclear arms if the spent fuel were reprocessed, something Iran says it has no intention of doing.
Iran has transported the reactor vessel - which would contain the fuel - to the heavy water plant but has not yet installed it, the IAEA report issued to member states said.
Other major components for the reactor, including control room equipment, have yet to be put in place there, it added.
STOCKPILE BELOW ISRAELI "RED LINE"
The Islamic Republic plans to commission the plant in the first quarter of 2014 and expects it to become operational in the third quarter, the IAEA said.
Israel, which has threatened to attack Iranian nuclear sites if diplomacy and sanctions fail to stop Tehran's nuclear drive, bombed Iraq's atomic reactor in 1981 and a suspected Syrian nuclear facility in 2007.
"Once the reactor operates, it could spawn more than enough weapons-grade plutonium for a bomb per year, should Iran ever decide to do that," said nuclear expert Mark Hibbs of the Carnegie Endowment think-tank, adding Israel "might be tempted to try to repeat" what it did in Iraq and Syria.
The IAEA report said Iran had installed hundreds more centrifuges at its Natanz plant since February, underlining Tehran's defiance of Western demands to curb the activity.
They included complete or partial installation of more than 500 advanced centrifuges which, once operational, would enable Iran to speed up the accumulation of refined uranium.
But, in a development that could help buy time for diplomacy to try and resolve the dispute, the report showed limited growth in Iran's most sensitive nuclear stockpile, medium-enriched uranium, and it remained below an Israeli "red line".
Tehran's holding of uranium gas refined to a fissile concentration of 20 percent - a relatively short technical step from weapons-grade - is closely watched as the Jewish state says it must not amass enough for one bomb if enriched further.
"Iran has not yet made the decision to pursue nuclear weapons, and if it were to do so, it remains years away from a deliverable arsenal," said the Arms Control Association, a Washington-based research and advocacy group.
(Additional reporting by Tabassum Zakaria; Editing by Robin Pomeroy)