Iran stepped up enrichment on June 6 -- the same day European Union foreign policy chief Javier Solana visited Tehran to present a package of benefits to be discussed if Iran would suspend uranium enrichment, which makes nuclear reactor fuel or in highly refined form atom bomb material, the report said.

On that Tuesday, it said, Iran started feeding the raw material of uranium hexafluoride gas, or UF6, into a connected series of 164 centrifuges -- known as a cascade -- to produce enriched uranium.

The report appears to dash hopes Iran is preparing an immediate pause in its nuclear fuel activities in order to start talks with six major powers on guaranteeing its program is peaceful.

But Solana said in Paris Thursday that he was "more optimistic than pessimistic" about the deadlock with Iran.

Iran said Thursday it is open to nuclear talks with the West but that technology was not up for discussion.

"We will negotiate about common concerns and for clearing up misunderstandings in the international atmosphere," said hardline President Mahmoud Ahmadinejad.

Iran is building new production lines of the centrifuges that carry out enrichment, the International Atomic Energy Agency said in the confidential report to be discussed by the IAEA's 35-nation board of governors next week in Vienna.

"This just shows that there's a long way to go before there's a deal," nuclear analyst David Albright told AFP from his ISIS think tank in Washington.

The report also said IAEA inspectors had found new traces of highly enriched uranium on equipment on Iran.

But it was unclear whether the enriched uranium traces were contaminants from equipment Tehran had purchased abroad or from enrichment that had been carried out by Iran.

A European diplomat in Vienna described the report as negative on all counts for Iran.

But the diplomat said this was not "crucial" since what mattered was getting Iran and the US-led "Iran six" of world powers to find a way of getting down to talks.

Tehran says it is seeking solely to use nuclear power to generate electricity but Washington and the European Union fear this is a cover for developing nuclear weapons. They are threatening UN sanctions if Iran does not take the benefits offer.

"Iran is continuing its installation work on other 164-machine cascades," said the report from the IAEA chief, Mohamed ElBaradei.

Iran built the cascade as a pilot plant for what it hopes will eventually be an industrial plant of more than 50,000 centrifuges, used to refine out the uranium 235 isotope.

At no time had Iran actually halted feeding uranium gas into centrifuges since making a first batch on April 11, a UN official said.

During a pause in feeding the 164-centrifuge cascade, but leaving it running empty for technical reasons, it had fed the gas into two single centrifuge machines.

London-based analyst Mark Fitzpatrick said: "This will strengthen Washington's resolve that full and complete suspension of Iran's nuclear fuel program has to be a condition for negotiations to begin, including no centrifuges spinning at all."

A UN official said the Iranians had fed "10s of kilos (pounds) into the system so far" and have produced only small amounts, "grams and hundreds of grams," of enriched uranium.

Iran also has produced 118 tonnes of uranium hexafluoride gas at its Isfahan plant since August. The "new conversion campaign" that began June 6 involved more than 30 tonnes of uranium ore to be converted into uranium gas, a senior UN official said.

These quantities would yield enough material for over 20 nuclear bombs, experts say.

According to the report Iran had also:

-- Failed to clear up IAEA questions over high-tech centrifuges it may have acquired.

-- Left unanswered questions over secret military projects that could be related to making nuclear weapons.

-- Failed to comply with a request to halt work on a heavy-water reactor that would make plutonium, another potential atomic weapons material.

Iran started last August to make feedstock uranium hexafluoride gas, which it then fed into centrifuges in February this year, producing enriched uranium from April.

The quality of enriched uranium being produced in April was appropriate for nuclear reactor fuel and was not the highly-enriched variety needed to make weapons.

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