Iran, a signatory to nuclear non-proliferation pacts, insists its programme is purely peaceful and has invited U.N. inspectors to verify its nuclear facilities later this month.

But the United States has labelled the Islamic Republic part of an "axis of evil" and accused it of harbouring secret plans to develop nuclear weapons. Enriched uranium is a potential bomb-building ingredient.

Iran's first operational reactor is being built with Russia in the southern port of Bushehr and is due to come onstream by early 2004.

Iran has said it is studying the feasibility of building several more reactors to meet the booming electricity demand of its 65 million people.

On Sunday, President Mohammad Khatami said Iran possessed uranium ore reserves and had begun mining operations in the Savand area, 200 km (125 miles) from the central city of Yazd.

Iran intended to control the whole fuel cycle, from mining and enriching uranium to managing 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.

Aqazadeh said this week the first steps had been taken to build an enrichment plant, "but we still have a long way to go to have this plant come onstream".

"We have had very good success from the viewpoint of having access to the knowledge of enriching and getting scientific control on this issue," he said on state television.

Aqazadeh said the enrichment plant would be built in Kashan in central Iran. The fuel would come from another facility in Isfahan, where a Uranium Conversion Facility (UCF) was close to inauguration.

A plant to produce fuel casings for uranium was also close to completion in Isfahan.

Despite Iran's insistence that it has purely peaceful objectives for its nuclear programme, analysts remain sceptical.

"Nobody thinks, I mean nobody, that these facilities are justified by Iran's power programme, even though they have every right under the NPT (Non-Proliferation Treaty) to develop safeguarded enrichment," said Gary Samore, a non-proliferation expert at London's International Institute for Strategic Studies.

COULD MAKE WEAPONS-GRADE MATERIAL

Samore speculated Iran was developing its facilities under the watchful eye of the International Atomic Energy Agency (IAEA) while giving itself the possibility to drop out of the NPT later and use the technology to make weapons-grade materials.

Samore said his suspicion centred on the development of another facility at a central Iranian town called Natanz, which he said was a gas centrifuge enrichment plant "clearly intended to develop an infrastructure for a nuclear weapons capability."

Last November, U.S. officials claimed that sites at Natanz and the town of Arak, seen in commercial satellite photographs, were of a type which suggested Iran could use them to build a nuclear weapon.

Iran dismissed those accusations and the IAEA said it was aware of the facilities and planned to inspect them in February.

IAEA Chief Mohamed ElBaradei, who is due to visit Iran on February 25, said this week Iran had assured the IAEA its nuclear plans were peaceful.

"I would like to work closely with them to enable them to demonstrate their commitment to a peaceful programme," he told reporters.

ElBaradei reiterated it would be "quite helpful" for Iran to join the so-called Additional Protocol, an agreement that would give the U.N. greater powers to inspect its nuclear facilities.

Aqazadeh said the uranium processing and casing plants were not related to the Bushehr nuclear facility.