The US says the programe is designed to build nuclear weapons, outgoing President Muhammad Khatami said Wednesday.
But Khatami told reporters that Iran has "no intention to end suspension of uranium enrichment", Khatami told reporters Wednesday.
Enrichment is a key process in the nuclear fuel cycle. Uranium enriched to low levels is used as fuel in nuclear power plants to generate electricity, but further enrichment makes it suitable for use in a nuclear bomb.
Iran has said it does not want to make atomic weapons despite the American claims to the contrary, but defends its right to pursue a nuclear program for peaceful purposes.
In November, Iran suspended all uranium enrichment-related activities to build international trust and avoid possible UN sanctions. But it has repeatedly stated that the suspension is voluntary and temporary.
In May, European negotiators led by Britain, Germany and France secured an agreement from Iran to continue suspension of such activities in return for a comprehensive plan by Europeans by early August, including economic incentives.
But Khatami, who will be replaced by ultraconservative president-elect Mahmoud Ahmadinejad on 6 August, said the government has decided that uranium reprocessing activities will resume at a nuclear plant in central Iran no matter what the final European agreement entails.
"Whether the Europeans mention our right in their would-be proposals or not, we will definitely resume work in Isfahan," Khatami told a news conference after a Cabinet meeting. "The end of the deadline is (when) the Europeans come up with their comprehensive plan," said Khatami.
A uranium processing site
"It was expected that they will agree to Isfahan restarting activities. We prefer to do it with their agreement. If they don't, then the decision to resume activities in Isfahan has already been taken by the ruling system."
The Isfahan Uranium Conversion Facility reprocesses raw uranium into a gas, the feedstock for enrichment. Iran has a uranium enrichment facility in Natanz, about 100km north of Isfahan, but such activities were suspended in 2003 under the arrangement between Tehran and the Europeans.
The suspension of activities at Isfahan has caused "many financial and professional damages" to Iran, said Khatami, including leaving many scientists without work.
Vice President Gholamreza Aghazadeh, who leads the Atomic Energy Organisation of Iran, said Europe should not expect Iran to do everything unilaterally.
Iran has implemented the Additional Protocol to the Nuclear Non- Proliferation Treaty, said Aghazadeh, allowing intrusive inspections of its nuclear facilities by the UN nuclear watchdog, the International Atomic Energy Agency and suspending all uranium enrichment-related activities.
"There is a need for a balance," he told reporters, adding that nuclear negotiations with Europe will be the "biggest challenge" for Ahmadinejad's incoming government.
Ahmadinejad has said his country will not pursue atomic weapons but will also not submit to international pressure to abandon its controversial nuclear program, comments similar to those during the past year by Iranian leaders.
Some Europeans worry that Ahmadinejad - who won presidential elections last month with the backing of hard-line elements of Iran's Islamic regime - could take a tougher stance in negotiations than the reform-minded administration of Khatami that he is replacing.
Before his campaign, Ahmadinejad had criticized concessions that had been made by Iran, including the freezing of parts of the nuclear program. But since winning the election, he has said he will continue talks with the Europeans.
"Whether the Europeans mention our right in their would-be proposals or not, we will definitely resume work in Isfahan".
outgoing Iranian president
Tehran says it won't give up its right under the Nuclear Non-Proliferation Treaty to enrich uranium but is prepared to offer strong guarantees that its nuclear program won't be diverted toward atomic weapons.
Europeans have been hoping to convince Iran to make its temporary suspension of nuclear activities into a permanent freeze.