The US and key EU powers will seek a fresh UN resolution imposing sanctions on Iran over its nuclear policy.
Iran says it will not stop enriching uranium
The move comes after EU foreign policy chief Javier Solana concluded that Iran was not going to suspend uranium enrichment, said a senior UK official.
"If Iranians don't suspend, then we go to the Security Council for sanctions," the US Secretary of State, Condoleezza Rice, said.
Iran's president has ruled out the suspension of the nuclear programme.
A top Iranian official has suggested that France monitor its nuclear programme by setting up a nuclear fuel consortium inside Iran.
France said any proposals would have to be fed through Mr Solana. The US and the UK rejected the Iranian offer.
The UN Security Council demanded the suspension of uranium enrichment in a resolution passed on 31 July to enable talks about Iran's nuclear programme to be resumed.
But Iran refused a 31 August deadline to do so.
Since then, Mr Solana has had a number of meetings with Iran's top nuclear negotiator, Ali Larijani.
He described the latest talks with Mr Larijani as "cordial and constructive".
Mohammad Saeedi's plan would still see uranium enriched in Iran
But he added: "We still have some elements that need to be agreed. We will continue talking."
A senior official at the UK Foreign Office, however, said Mr Solana had submitted a report to the six major powers dealing with Iran's nuclear issue - the five permanent members of the UN Security Council, plus Germany.
In his report, Mr Solana said that last week Mr Larijani had "made it clear that Iran is not prepared to resume suspension as required by the Security Council", the UK official said.
The official said that, in accordance with resolution 1696 which threatened that sanctions might follow a refusal, measures that would be "incremental, proportionate and reversible" would be considered.
The BBC News website's world affairs correspondent, Paul Reynolds, says the issue has now reached a new level.
Any sanctions, our correspondent says, would be economic in nature and probably targeted in the first instance at Iran's nuclear and ballistic missile programmes, with possibly a ban on countries supplying Iran with critical parts.
There might also travel and financial restrictions on Iranian officials involved in nuclear work, he adds.
The British official said he did not think that the moves would trigger an oil shock in the markets.
The deputy director of Iran's atomic energy agency, Mohammad Saeedi, told French radio that a solution to the nuclear issue could be a consortium with France to enrich uranium in Iran.
"That way France... could control in a tangible way our enrichment activities," Mr Saeedi told France-Info.
Mr Saeedi presented this as a new idea, but more than a year ago Iran's president suggested foreign companies should enter into joint ventures with Iran to develop its nuclear power industry, says the BBC's Tehran correspondent Frances Harrison.
Iran has given out confusing and conflicting signals about how far it is willing to go in what many suspect may be a deliberate attempt to delay, she adds.