The news comes despite mounting pressure from the United States and European governments for Iran to halt all sensitive nuclear work.
"The first drums of new uranium ore were fed into the process at the uranium conversion facility in Isfahan this morning," one unnamed diplomat, who is close to the International Atomic Energy Agency (IAEA), told AFP in Vienna on Wednesday.
With uranium conversion resuming at the controversial plant, a statement from the European Union warned that Tehran was at a crucial juncture in its international relations.
"The world is watching," said British Europe minister Douglas Alexander, representing the current British presidency of the EU at a debate on Iran at the European Parliament.
"Iran must provide objective guarantees that its nuclear program is for solely peaceful purposes,” he said.
He added that the EU was consulting with other countries including the US, Russia, China, India and South Africa "about the next steps".
"The world is watching"
British Europe minister
On 24 November the board of the IAEA is scheduled to meet on calls to refer Tehran to the UN Security Council for possible sanctions over its nuclear programme.
Iran had notified the IAEA in late October that it intended to process a new batch of uranium but no date was given.
Enriched uranium can be used as fuel for a civilian nuclear
reactor or as atom bomb material.
Accused by several Western governments of running a covert atomic weapons programme, Iran froze all work at Isfahan late last year under a deal with France, Britain and Germany.
Resuming work at the plant has
sparked calls for sanctions
But it resumed work at the plant in August after the election of hardline president Mahmoud Ahmadinejad.
That prompted the EU's three biggest powers – France, Germany and the UK - to suspend talks with the Islamic republic over its atomic project.
Iran covered up a uranium enrichment programme for 18 years until 2003, drawing Western accusations that it has sought to build nuclear weapons.
The government in Tehran has repeatedly said the aim of its nuclear research is purely for peaceful power generation purposes.
IAEA chief Mohamed ElBaradei is to hand out a fresh report on inquiries into Iran's nuclear programme to the agency's 35 member states on Friday, setting the stage for next week's meeting.