"All this talk is baseless," foreign ministry spokesman Hassan Ghashghavi said at his weekly news conference.

When asked if Iran had enough nuclear material to manufacture an atomic bomb Mullen had told CNN on Sunday: "We think they do, quite frankly," the first time a US official had made such an assessment.

The Pentagon rowed back on Mullen's comment on Monday, insisting that he had meant Iran had enough uranium which it could enrich to the very high level required for a bomb, not that it had already done so.

"When he answered the question about low-grade uranium, it sounded like he was talking about an enriched uranium capability," spokesman Bryan Whitman told reporters adding that there was no difference of assessment between Mullen and Defence Secretary Robert Gates.

In a separate interview aired on NBC television on Sunday, Gates had said Iran was "not close to a weapon at this point."

The Iranian foreign ministry spokesman stressed that Tehran had no desire to develop a nuclear bomb but added that the safeguards overseen by the International Atomic Energy Agency meant that it could not do so even if it wanted to.

"Technically speaking there are IAEA cameras and the IAEA is testing the purity of Iranian material," he said.

"Therefore, how can it be possible that with this level of supervision, low enriched material can be turned into highly enriched?"

In a report last month, the IAEA said Iran now has 1,010 kilogrammes (2,227 pounds) of low-enriched uranium hexafluoride from its enrichment plant at Natanz.

For use in a bomb as opposed to a nuclear power station, the material would have to be enriched to a far higher level.

US Secretary of State Hillary Clinton, on her first visit to the Middle East as America's top diplomat, on Monday reiterated Washington's willingness to engage with Iran if it "unclenches its fist."

"As President (Barack) Obama says, we are willing to extend a hand if the other side unclenches its fist in order to have some process of engagement," she told a news conference after a donors' meeting on Gaza in the Egyptian resort of Sharm el-Sheikh.

"But it will only be done in close consultation with our friends," she added.

Clinton declined to comment on remarks attributed to her by a US official expressing doubt that Iran would respond to the US overtures.

Iran and Russia meanwhile pursued their preparations for the launch later this year of Iran's first nuclear power plant in the southern city of Bushehr.

Visiting Russian Energy Minister Sergei Shmatko held talks on Monday evening with the head of the Atomic Energy Organisation of Iran, Gholam Reza Aghazadeh, state television reported on its website.

After their meeting, Shmatko said he hoped that "the ongoing operations related to the commissioning would be done successfully. I think our cooperation will remove any problem," he added.

Iran began testing the 1,000 megawatt Russian-built plant on Wednesday.

Moscow has repeatedly assured global powers that the plant will not be used for military ends. It is supplying the fuel for the plant and will ship the spent fuel back to Russia after use.

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