It may alarm Washington, which accuses the Islamic Republic of harbouring secret plans to develop nuclear weapons.

"Iran has discovered reserves and extracted uranium...we are determined to use nuclear technology for civilian purposes," Khatami said.

He said the uranium had been extracted in the Savand area, 200 km (125 miles) from the central city of Yazd, and processing facilities had been set up in the central cities of Isfahan and Kashan.

Iran, which Washington has labelled a member of an "axis of evil" along with Iraq and North Korea, insists its nuclear plans are purely for civilian purposes, to meet growing demand for electricity from its 65 million people.

It has invited inspectors from the United Nations nuclear watchdog agency, the IAEA (International Atomic Energy Agency), to verify its nuclear facilities later this month.

In another development, state television quoted Defence Minister Ali Shamkhani as saying Iran, for the first time, had developed the capacity to produce composite solid fuels for its missiles.

"This solid fuel could be used for any kind of missile," he said after inaugurating a manufacturing plant on the weekend.

Iran makes medium-range missiles, anti-tank missiles, air-to-surface missiles and surface-to-surface guided missiles that use composite solid fuel.

U.S. CRITICAL OF RUSSIAN HELP

Washington, Iran's arch-foe, has long been at odds with Russia over its help in building an $800 million nuclear power plant at Iran's southwestern port of Bushehr, which Tehran expects to come on stream at the end of 2003 or early in 2004.

U.S. fears over the project were somewhat assuaged by assurances from Moscow that all spent fuel from the plant would be returned to Russia, ensuring that it would not be diverted to a weapons programme.

But Khatami said on the weekend that Iran intended to control the whole fuel cycle itself, from mining and processing the uranium ore to reprocessing the spent fuel.

"If we need to produce electricity from our nuclear power plants, we need to complete the circle from discovering uranium to managing remaining spent fuel," he said. "The government is determined to complete that circle."

Diplomats said Khatami's announcement stemmed from world pressure to come clean about the scope of its nuclear programme.

"They seem to be making a creeping announcement of what their capabilities are," said one European diplomat.

The head of the Iranian parliament's Energy Commission, Hossein Afarideh, told Reuters the extracted uranium, after being processed, could be used as fuel for the Bushehr power plant.

Iran has signed the Treaty on the Non-Proliferation of Nuclear Weapons and has said it might build further nuclear power plants to meet its booming electricity demand.