Gordon Brown has warned Iran it faces a "clear choice" over its nuclear programme - and urged it to let the world help it get civil nuclear power.
The prime minister said an expansion of nuclear power was needed globally to meet carbon reduction targets.
Iran already says its nuclear programme is designed for developing civil nuclear power rather than weapons.
But Mr Brown said that unless it agreed to the UN overseeing the programme Iran faced "further and tougher sanctions".
The prime minister argued that Iran would be a test of how nuclear nations can work together with non-nuclear states to equip them with new sources of energy.
He urged it to pursue a purely civil nuclear path with the promise of international support and engagement.
'Work with us'
Enriched uranium can be used in power plants, but can also be used to make atomic weapons.
The Iranian government continues to defy the international community, accumulating enough uranium - according to a recent report by the International Atomic Energy Authority - to fill a warhead, though it would need further enriching to reach weapons grade.
The prime minister said: "Iran's current nuclear programme is unacceptable.
"Iran has concealed its nuclear activities, refused to cooperate with the IAEA (International Atomic Energy Authority), flouted UN Security Council resolutions and its refusal to play by the rules leads us to view its nuclear programme as a critical nuclear threat.
"Iran therefore faces a clear choice: to continue in this way and face further and tougher sanctions, or change to a UN-overseen civil nuclear energy programme, that will bring the greatest benefits to its citizens."
But Mr Brown said: "However we look at it, we will not secure the supply of sustainable energy on which the planet depends, without a role for nuclear power."
The world needed "moral leadership", he said, urging "collaboration, not isolation".
Britain would be "at the forefront" of efforts towards general nuclear disarmament when international talks are held next year, he added.
Mr Brown said, that "if it is possible to reduce the number we have of our own warheads... Britain will be ready to do so".
He encouraged Iran to accept US President Barack Obama's offer of negotiation and to heed calls from China, Russia and leading European powers to comply with UN nuclear resolutions.
Defence Secretary John Hutton told BBC Radio 4's Today programme that, if Iran continued with its nuclear weapons programme, it "would be very destabilising for the region and the world. The consequences of that are too frightening to think about".
He added: "We have got to be clear with Iran about the consequences of them not complying. The clock is ticking on all of this...
The rights come with responsibilities, which in Iran's case have been violated
"The offer is still on the table for the Iranians to take up this extraordinarily generous and, I think, unprecedented offer to help them with their [civil] programme."
The US has offered to engage with Iran to reduce tensions, while insisting it will not tolerate it having a nuclear bomb and extending sanctions against Tehran.
Iranian president Mahmoud Ahmadinejad, who is facing elections this year, has shown little sign of wanting a "deal" to put the country's nuclear programme under international supervision in return for the lifting of sanctions and financial assistance.
According to International Atomic Energy Agency forecasts, more than 30 nuclear reactors will have to be built every year if the world is to meet its target of halving carbon emissions by 2050.
For the Conservatives, shadow foreign secretary William Hague said: "We agree that Iran has the right to develop civil nuclear power, provided that it cooperates fully with the IAEA and complies with the non-proliferation treaty.
"The rights come with responsibilities, which in Iran's case have been violated.
"We therefore repeat our call for EU countries to impose tougher sanctions against Iran while it refuses to comply with Security Council resolutions or to give full access to international nuclear inspectors."
Liberal Democrat energy and climate change spokesman Simon Hughes said: "A new generation of nuclear power stations will not solve climate change. They will produce too little energy, come on stream too late and be too expensive.
"This is another example of short term, old-fashioned thinking and it undermines our security."
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