'Unacceptable'

Mohamed ElBaradei, the IAEA chief, who is in New York for a series of meetings at the UN headquarters, declined to comment on Iran's response to the proposal.

But Western diplomats appeared unimpressed by the Iranian demand.

"The Iranians want to get enriched uranium fuel for their reactor first before they send it abroad, which simply isn't acceptable," one diplomat was quoted by the Reuters news agency as saying.

The Iranian state news agency, IRNA, said it was not Tehran's final "answer" to the plan.

Nuclear negotiations

Iran has insisted on simultaneously exchanging its low-enriched uranium for nuclear fuel produced overseas, the state news agency said on Friday, calling the demand a "red line'' that will not be abandoned.

The condition undermines the basis of the plan which demands Iran ship most of its uranium to be further enriched in Russia and turned into fuel rods in France for use in a research reactor.

Ban Ki-moon, the UN secretary-general, urged Iran earlier this week to accept the IAEA proposal, saying it would "constitute an important confidence-building measure".

Iran insists its nuclear programme is peaceful and has refused to halt it.