Iran told the United Nations' nuclear watchdog yesterday it will begin producing purer uranium, a step experts said could bring Tehran significantly closer to having the fuel for a nuclear weapon.

Iran plans to enrich uranium at its Natanz centrifuge plant to nearly 20 per cent purity, a much purer form of the metal than it's achieved thus far, it informed the International Atomic Energy Agency.

If Iran follows through, "it's a really bad development from a proliferation point of view," said David Albright, who closely follows Iran's nuclear development.

Albright, the president of the Washington-based Institute for Science and International Security, said Iran is three-quarters of the way to producing bomb-grade material.

Iran's decision appeared to kill for now the on-again, off-again deal that was reached in October to ship three-quarters of its nuclear fuel abroad to be refashioned for use in a civilian research reactor.