Japan had signed a $2bn-deal with Tehran in February 2004 to develop the massive Azadegan oilfield in southwestern Iran to try to ensure stable oil supplies for the resource-poor Asian nation.
Inpex, the Japanese oil firm which acquired the development rights, plans to start work in early 2006, the Asahi Shimbun daily reported on Thursday, quoting unnamed Inpex officials.
Production is expected to start in 2008, a year later than initially scheduled, the report added.
Washington has repeatedly objected to Tokyo about the project, keeping the Japanese government, the largest shareholder in Inpex, prudent over when work should begin.
"Inpex may lose its (development) rights if it fails to start the project soon," an Inpex official was quoted as saying in the report.
European and Chinese firms are also interested in acquiring shares in the Iranian oil development, it noted.
Inpex officials were not immediately available.
The company has already begun preparing for constructing drilling and other facilities with an environmental assessment approved in July, the report said.
"Inpex may lose its (development) rights if it fails to start the project soon"
An Inpex official
"The government should handle the oil development issue separately from the nuclear allegation," an Inpex official said in the report, referring to US concerns that Tehran is acquiring the technology for a nuclear weapons programme.
Ever since the 1973 oil crisis, Japan, which imports nearly all of its oil needs, has developed its own diplomacy with key oil producers in the Middle East, often putting it at odds with the United States, especially over Iran.
Initial production in the field is seen at 50,000 barrels per day (bpd) within 40 months, rising to 150,000 bpd after 52 months and 260,000 bpd in eight years.