Iran has warned it will resume suspended nuclear activities and halt surprise UN inspections if it is referred to the UN Security Council.
Iran says its nuclear programme is needed to meet its energy needs
The warning, issued by chief Iranian nuclear negotiator Ali Larijani, follows an agreement by six key powers to report Tehran to the council.
Top officials from two of the powers, Russia and China, will travel to Iran to urge it to back down in the row.
Iran denies Western claims that it is aiming to build nuclear weapons.
At late-night talks in London, the five permanent council members - the US, UK, Russia, China and France, plus Germany - agreed that the International Atomic Energy Agency (IAEA) should report Iran to the Security Council when the agency's board meets in Vienna on Thursday.
However they added that the council would take no action until March, after it had received a report from the IAEA.
UK officials see the move as a significant advance in efforts to press Iran to give up producing enriched uranium, which can be used in weapons as well as power plants.
Iran has maintained a voluntary suspension of enrichment programmes but earlier this month broke the UN seals on nuclear research facilities, raising fears in some Western nations the process could resume.
Mr Larijani said: "In case of referral... we have to start all nuclear work that has been voluntarily suspended and stop implementation of the Additional Protocol."
The protocol, part of the Nuclear Non-Proliferation Treaty that Tehran has signed but not yet ratified, allows UN inspectors access to Iranian sites with as little as two hours' notice.
BBC European affairs correspondent William Horsley says the London announcement is a step forward because China and Russia, which had been reluctant to report Iran to the Security Council, have come on board.
Those two nations are now sending senior envoys to Tehran to urge Iran to comply with internationally agreed safeguards regarding its nuclear programme.
Our correspondent says this visit is being described as rare if not unprecedented.
However, he says it is also part of a compromise. The Americans and the Europeans had been pressing for formal referral - a move that would normally lead to sanctions - but settled for the less formal option of "reporting" Iran's activities.
Iran is expected to face more criticism at the special IAEA board meeting in Vienna on Thursday. But analysts say the powers will wait until the regular board meeting in March to put their planned resolution into effect.
A US diplomat told Reuters news agency: "This is the most powerful message we could have hoped for."
The dispute arose in 2003, when the IAEA reported that Iran had hidden a uranium enrichment programme for 18 years.
Tehran insists it should be allowed to develop nuclear technology, but the US and other Western powers do not want it to produce its own enriched uranium, which can be used in weapons as well as power plants.
US President George W Bush, previewing his State of the Union speech to be delivered on Tuesday, said he would have separate messages for the Iranian people and their government.
"In speaking to the people, my message is this: 'You know, we're not going to tell you how to live your life, but we would like you to be free'," he said.
"But to the government, our message is that if you want to be a part of the family of nations, give up your nuclear weapons ambitions."