The United States, which says Iran is hiding secret nuclear weapons work, praised the move at the Vienna-based International Atomic Energy Agencyas "a significant setback for Iran's nuclear strategy" in comments in Washington by State Department undersecretary Nicholas Burns.

Iran however blasted the vote at the IAEA's 35-nation board of governors, with foreign ministry spokesman Hamid Reza Assefi saying in Tehran that the IAEA resolution was "illegal and unacceptable."

The resolution drafted by European Union negotiators Britain, Germany and France states for the first time since the IAEA began investigating Iran in February 2003 that the Islamic Republic is in "non-compliance" with the nuclear Non-Proliferation Treaty (NPT), mainly for hiding sensitive atomic activities for almost two decades.

A finding of non-compliance is an automatic trigger for taking the matter to the Security Council, which can impose sanctions as it, unlike the IAEA, has enforcement powers.

But referral to the Security Council would come only after a report on Iran by IAEA chief Mohammed ElBaradei, which he will probably make to the next board meeting in November.

ElBaradei said there is still room for diplomacy.

"I am encouraged that at the end of the day the issue has not been referred to the Security Council, precisely to give time for diplomacy and negotiation.

"So all of us have to exploit this window of opportunity from now until November," when the IAEA board is to meet again, following the session that ended Saturday, ElBaradei said.

Former UN weapons inspector David Albright told AFP from Washington that the delay in referral, which was a softening from an earlier EU resolution that called for immediate referral, was "just right, it gives time for each side to have a chance to do something differently."

Gregory Schulte, US ambassador to the IAEA, "called upon Iran to cease the activities that give us such concern, to come clear with the IAEA and return to the negotiating table."

But Iranian delegation chief Javad Vaeidi said the West had failed to win a mandate as there was a split vote, rather than a consensus, for the resolution.

"For us, good will begets good will while threat invokes threat," Vaeidi said, in a reference to eventual Iranian retaliatory actions, without going into detail.

Iranian officials had said their country would resume making enriched uranium, a nuclear reactor fuel that can also be bomb material, if the resolution were adopted.

Non-proliferation expert Joe Cirincione told AFP from Washington that a move to enrich uranium would be dangerous, as this is a "red line" for the United States, the EU and Israel.

"Then it's off to the races since the escalation would spiral out of control," Cirincione said.

Iran's resumption last month of uranium conversion, a first step in making enriched uranium, had scuttled talks with the EU on guaranteeing Iran's nuclear program is peaceful.

The resolution said Iran could avoid penalties by halting conversion, giving IAEA inspectors full cooperation and returning to the EU talks.

"Iran has an opportunity now to address the clear concerns of the IAEA and the lack of (international) confidence in Iran's nuclear intentions," British Foreign Secretary Jack Straw said in a statement issued in London.

Russia, which has an 800-million-dollar contract to build Iran's first nuclear reactor, had opposed reporting Tehran to the UN Security Council, but abstained in the vote, and then called upon Tehran to cooperate fully with the

"Russia believes it is necessary to use the time remaining before the next meeting of the board of directors of the IAEA to elaborate a program of constructive joint action which guarantees ... the peaceful orientation of Iran's nuclear program," the Russian Foreign Ministry said in a statement.

The vote on the resolution came after days of haggling on the board that set Russia, China and non-aligned states, which support Iran's right to peaceful nuclear technology, against the EU and the United States.

At an organization which prides itself on consensus decisions that show international unity, the vote was 22-1, with 12 abstentions including Russia and China, IAEA spokeswoman Melissa Fleming told reporters.

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