"I would like to say to you that the day before yesterday the enrichment of fuel at 20% started," President Ahmadinejad told huge crowds marking the 31st anniversary of Iran's revolution, in Tehran on Thursday.
"I would like to notify you and announce with a loud voice that - thank God - our chief nuclear negotiator announced that the produce of fuel at 20% started under the watchful eye of our scientists."
He added: "They all know that right now in Natanz, we have the capacity to enrich uranium at high levels.
"We have the capacity to enrich above 20, even 80%. But because we have no need, we won't do that."
In a confidential report to member states, seen by news agencies, IAEA chief Yukiya Amano said Iran's output of up to 20% enriched uranium would remain modest.
But experts say Iran could convert a stockpile of 20% enriched uranium to weapons grade material within six months.
The nation is already subject to UN sanctions because of its nuclear programme.
On Wednesday the US stepped up pressure on Tehran by imposing further sanctions against companies connected with the Iranian Islamic Revolutionary Guards.
The companies' profits helped fund Iran's nuclear and missile programmes, the US Treasury said.
Earlier, President Barack Obama said the US and its allies were moving "fairly quickly" towards imposing additional fresh sanctions on Iran.
On Thursday UK Prime Minister Gordon Brown also said Iran would face tougher sanctions if it continued with its uranium enrichment programme and crackdown on opposition groups.
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