Mr Mottaki suggested a deal that the West and Russia are likely to reject
Iran's foreign minister has cast doubt on whether the country will accept a deal which offers it the opportunity to continue its nuclear programme.
The deal proposed by Western and Russian negotiators envisages nuclear material being enriched outside the country and returned as fuel rods.
The process would prevent Iran enriching uranium to the degree necessary to make a bomb, the UN says.
But Iran now says it will only swap its uranium for fuel inside its borders.
Foreign Minister Manouchehr Mottaki said Iran was ready to continue talks over the issue.
NUCLEAR FUEL CYCLE
Mined uranium ore is purified and reconstituted into solid form known as yellowcake
Yellowcake is converted into a gas by heating it to about 64C (147F)
Gas is fed through centrifuges, where its isotopes separate and process is repeated until uranium is enriched
Low-level enriched uranium is used for nuclear fuel
Highly enriched uranium can be used in nuclear weapons
Under the plan brokered by the International Atomic Energy Agency, Iran would send 70% of its nuclear material to Russia for re-processing.
Mr Mottaki suggested Iran would agree to exchange all its uranium at once for an equivalent amount of enriched nuclear fuel, but on its own territory.
Iran's proposal is very unlikely to be accepted by the international powers opposed to Iran's nuclear programme.
BBC Iran correspondent Jon Leyne says there are now very real doubts among negotiators that the Iranian government has the authority to deliver on any deal it might agree in international talks.
He says negotiators have all but given up hope of a deal.
France's Foreign Minister, Bernard Kouchner said he was disappointed.
"There is a clear and negative response from the Iranians," he said.
The deal was raised following Iran's admission in September that there was a previously unknown nuclear facility in the mountains near the city of Qom.