Top EU countries have warned Iran they will cut off talks on the nuclear issue if it goes ahead with plans to resume nuclear activities.
Iran insists it wants nuclear power, not weapons
France, Britain and Germany said they would be forced to take "other courses of action" if dialogue failed.
French Prime Minister Dominique de Villepin said Tehran could be referred to the UN Security Council.
Iran has responded by saying threats are not the solution, and insists it will not cede its "legitimate rights".
A spokesman for Iran's Supreme National Security Council said the decision to resume conversion of uranium at the Isfahan plant was irreversible.
The foreign ministers of France, Germany and the UK, as well as EU foreign policy chief Javier Solana, made their warning clear in a joint letter to the Iranian authorities on Tuesday.
"Were Iran to resume currently suspended activities, our negotiations would be brought to an end and we would have no option but to pursue other courses of action," the letter said.
"We therefore call upon Iran not to resume suspended activities or take other unilateral steps."
France, Britain and Germany have so far resisted calls by the United States to take Iran to the UN, hoping that the crisis can be defused in talks.
The three EU countries are due to deliver full proposals within a week for nuclear, economic and political co-operation with Iran, provided it ends all nuclear activities.
Iran had reached an agreement with the EU trio to suspend nuclear processing last November - but on Monday announced it was set to resume uranium conversion.
French Foreign Minister Philippe Douste-Blazy said the affair was "very serious" and warned of "a major international crisis".
Iranian Foreign Ministry spokesman Hamid Reza responded by saying Iran would not abandon its "legitimate rights" to carry out peaceful nuclear activities under the supervision of the International Atomic Energy Agency (IAEA).
"The time for threats and intimidation is over," he is quoted as saying by state news agency Irna.
However, German Chancellor Gerhard Schroeder called Iran's latest position "threatening", and said the EU, US and Russia would remain united in opposing it.
France and Washington now appear to be in agreement on referring Iran to the UN Security Council.
BBC Tehran correspondent Frances Harrison says the step is likely to mean the end of two years of European efforts to engage Iran in dialogue.
Iranian officials had said the seals on the Isfahan plant would be removed on Monday night, but there has been a delay in the international inspectors setting up their cameras and mechanisms for supervising the process.
The initial reaction is likely to be an emergency board meeting of the IAEA in Vienna, but there appears to be growing momentum behind referral to the Security Council, our correspondent says.
Iran says it is not worried about referral to the UN - partly because it is confident international inspectors have not found proof of an existing weapons programme, and partly because it hopes for the support of its trading partners Russia and China in the Security Council, our correspondent says.