Iran is forging ahead with nuclear enrichment by feeding uranium gas into centrifuge "cascades", a report by the United Nations' atomic watchdog says.
Mohamed ElBaradei delivered his report ahead of a crucial meeting
Feeding the gas into centrifuges can produce fuel for nuclear power plants, or, ultimately, atomic weapons.
Iran has begun using a 10-centrifuge machine - or cascade - and is testing a 20-centrifuge version, chief inspector Mohamed ElBaradei said.
Iran says its plans are peaceful, but Mr ElBaradei said he could not be sure.
The report was prepared for a critical 6 March meeting of the International Atomic Energy Agency's (IAEA) board of governors, which could be followed by punitive measures by the UN Security Council.
A senior British official said that he expected the Security Council to take up the issue of Iran's nuclear activities in March, after the meeting of the IAEA board on Monday which will consider the latest report from Mr ElBaradei.
The official said the council would probably issue a statement in the first instance giving support to the IAEA and calling on Iran to comply with the demands the agency has laid out.
A timeframe, yet to be decided, would be attached to this. If Iran did not comply, the demand would be strengthened and after that, further measures could be threatened.
Mr ElBaradei said it was regrettable that questions over Iran's nuclear programme remained unanswered "after three years of intensive agency verification".
"To clarify these uncertainties, Iran's full transparency is still essential," he added.
ENRICHING URANIUM: CASCADES
For uranium to be used as nuclear fuel, its concentration of uranium-235 isotopes must be increased
To be used in a reactor, uranium must contain 2-3% U-235
Weapons grade or highly enriched uranium (HEU) has a concentration of at least 90% U-235
Gas centrifuges are used to carry out this enrichment process
Cascades are chains of these centrifuges
3,000 of the type of centrifuges Iran is using would produce enough HEU for one nuclear bomb, analysts say
The report said that although inspectors had not seen any diversion of nuclear materials, they were not in a position to conclude that there were "no undeclared nuclear materials or activities in Iran".
Iranian officials had warned they would restart small-scale uranium enrichment by early March but they did not specify a date.
Iranian Foreign Minister Manouchehr Mottaki said on Tuesday that Tehran was determined to pursue enrichment.
But speaking on a visit to Japan, Mr Mottaki said he hoped continuing talks with Russia on a proposal that Iran conduct nuclear fuel enrichment on Russian territory would ease international concerns over its nuclear ambitions.
Japan, which relies on Iran for one sixth of its oil imports, is seeking a compromise on the issue ahead of next week's meeting of the IAEA, of which it is currently the chair.
But the BBC's Jonathan Head in Tokyo says the two countries' once close relationship is now under strain.
Japanese Foreign Minister Taro Aso said that if Iran made enemies of the UN Security Council, there would be limits on how friendly Japan could continue to be.
An Iranian delegation headed by senior security official Ali Hoseyni-Tash is due to arrive in Moscow on Tuesday to resume weekend talks on the joint venture in Russia.
Iran said on Sunday that Tehran and Moscow had agreed in principle to co-operate over uranium enrichment.
But the next day, Russian Foreign Minister Sergey Lavrov said any deal depended on Iran ending its own enrichment activities.
Washington also cast doubt on the idea that there had been any kind of agreement.
"There's no deal, frankly, that I'm aware of," said deputy state department spokesman Adam Ereli.
He described the talks as "chaff being thrown up by the Iranians" ahead of the IAEA meeting.