Monday's announcement that Iran had resumed uranium conversion activities at its plant in the central city of Isfahan after a nine-month hiatus drew expressions of concern from the European Union and the United States.

"Iran has resumed the conversion of uranium under the supervision of the International Atomic Energy Agency," said the vice-president of Iran's Atomic Energy Agency Mohammad Saidi.

Amid scenes of excitement, an AFP correspondent saw technicians in protective clothing opening a first barrel of raw mined uranium for conversion, while International Atomic Energy Agency (IAEA) inspectors installed security cameras to monitor the process.

The European Union has called for an emergency meeting Tuesday of the IAEA board during which an ultimatum to suspend nuclear fuel work is expected to be issued.

The meeting is the first step in a process that could see Iran referred to the UN Security Council for possible sanctions -- a US demand that the Europeans have been hoping to avoid through their dialogue with Tehran.

However Iranian officials emphasised they were not worried about Security Council action, saying the Islamic republic's right to the nuclear fuel cycle is enshrined in the Nuclear Non-Proliferation Treaty (NPT).

The nuclear programme has proved to be a rare point of unity for Iran's fractious political groups, with Islamists, reformists and those nostalgic for the imperial regime that launched the drive agreeing it is a source of pride.

At the key meeting on Tuesday, the IAEA was expected to issue Iran with a stern warning rather than immediately take it to the Security Council.

Iran has been under investigation for more than two years by the IAEA , which has accused it of hiding controversial nuclear work but has yet to find any proof of a weapons programme.

Conversion turns uranium ore or yellowcake into a feed gas for enriching uranium, which can be the fuel for reactors or the explosive core of atom bombs.

In the United States officials Monday held out the threat of UN sanctions but expressed hope the European negotiations could be put back on track.

France, Britain and Germany, which headed the negotiations with Iran on behalf of the European Union, took a tougher line, calling on Tehran to reverse course and return to talks.

German Foreign Minister Joschka Fischer warned of possible "disastrous consequences," while Britain said any resumption of conversion would be a breach of previous agreements and IAEA resolutions.

In New York UN Secretary General Kofi Annan urged Iran's newly-elected President Mahmoud Ahmadinejad to show restraint.

The IAEA said the conversion started before testing of the monitoring equipment had been completed but that seals placed on parts of the Isfahan plant by its inspectors had so far not been broken.

The crisis comes at a pivotal time after the ultra-conservative Ahmadinejad took office last week. Fears the new leader would take a tough stance intensified when he put a fellow hardliner in charge of the nuclear dossier.

A government spokesman said Ali Larijani, a former boss of state-run media who has described giving up Iran's right to uranium enrichment for EU incentives as like swapping "a pearl for a sweet", would soon take up the post.

Larijani replaces the more moderate Hassan Rowhani who managed to maintain dialogue with the West over the past two years.

Iran last week rejected an EU package of trade, technology and security incentives to abandon the nuclear fuel cycle work, with the process once again stumbling on the crucial issue of Iran's right to uranium enrichment.

Saidi said Iran had started processing uranium into a substance called uranium tetrafluoride (UF4) and would then begin turning it into the feed gas known as uranium hexafluoride (UF6) by Wednesday.

He said the production would be stocked in Iran for use when the country resumes enrichment.

Tehran insists that actual enrichment remains suspended at the underground Natanz plant and that it still wants to pursue negotiations with the Europeans.

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