VIENNA: Iran is pushing ahead with its nuclear program in defiance of tougher sanctions and is hampering the U.N. atom watchdog`s work by barring some inspectors, the IAEA says in a new report.

A confidential International Atomic Energy Agency (IAEA) report, obtained by Reuters on Monday, also voices continued concern about possible activities in Iran to develop a nuclear-armed missile.

Washington called the report "troubling" while Tehran, which rejects Western accusations it is seeking to build nuclear bombs, said it was unbalanced.

"This is a pretty critical report and it seems the sides have reached an impasse," said David Albright, head of the Washington-based Institute for Science and International Security.

The eight-year international dispute over Iran`s nuclear activities has the potential to set off a regional arms race and spark a conflict in the Middle East.

The United States said the new report showed that Tehran was still trying to develop a nuclear weapons capability.

"The IAEA`s reports of obstruction and Iran`s failure to cooperate are troubling to all who care about non-proliferation and global security," White House spokesman Tommy Vietor said.

Ali Asghar Soltanieh, Iran`s envoy to the IAEA, said the report by new agency chief Yukiya Amano "has damaged the agency`s technical reputation" and was "not balanced" compared to those of Amano`s predecessor, Mohamed ElBaradei.

He said all of Iran`s nuclear activities were under the IAEA`s "complete supervision," Mehr News Agency reported.

Last month, a former top U.N. nuclear official was quoted as saying that Iran had stockpiled enough low-enriched uranium for 1-2 nuclear weapons but it would not make sense for it to cross the bomb-making threshold with only this amount.

The West hopes the imposition since June of additional U.N., U.S. and European sanctions on Iran -- including measures that target its lifeblood oil and gas sectors -- will persuade the Iranian leadership to back down and halt sensitive activity.

INSPECTORS UNDER "PRESSURE"

Iran repeatedly has rejected such demands and is sending mixed signals about its readiness to negotiate with the West, offering unconditional talks on a stalled plan to swap nuclear fuel but setting terms for any broader discussions.

The IAEA report voiced concern about what it called Iran`s "repeated" objections to its choice of some inspectors with Iran-specific experience, saying this "hampers the inspection process" and effectiveness of their work in the country.

Tehran barred two inspectors from entering in June, accusing them of wrongly reporting that some nuclear equipment was missing. Iran also denied access to a senior inspector in 2006 and also has objected to other appointments in the past.

A diplomat familiar with the IAEA`s Iran investigation said this increased "pressure" on the inspectors and made their work more difficult even though the agency still had "a good number" of inspectors in Iran able to carry out the work.

But ISIS`s Albright said the incidents showed "the erosion of the IAEA`s ability to do its job."

The IAEA for years has been investigating Western intelligence reports indicating Iran has coordinated efforts to process uranium, to stage missile tests and to revamp a ballistic missile cone in a way suitable for a nuclear warhead.

Tehran says the intelligence is forged, but its record of secrecy has stoked suspicions, heightened by the launch in February of higher-grade uranium enrichment of 20 percent fissile purity, bringing it closer to weapons-grade material.

The IAEA called on Iran -- which says its work is aimed at generating electricity -- to grant the U.N. agency access to relevant sites, equipment and people "without further delay."

The report said Iran had produced around 2.8 tonnes of low-enriched uranium, up from 2.4 tonnes in May, as well as 22-kg (48.5 lb) of the higher-grade material.

It said there had been four cases when agency seals designed to prevent any diversion of nuclear material had been broken at Iran`s Natanz enrichment plant. Iran said they were accidental but the IAEA said it would look into the issue.

"It`s not ok. They are there for a purpose -- the purpose is to make sure there is containment. Once a seal is broken there is no containment," said another person familiar with the Iran probe.

BDST: 0305 HRS, September 07, 2010