Iran's supreme leader Ayatollah Ali Khamenei (L) speaks during a meeting with high-ranking officials [Reuters]

The International Atomic Energy Agency [IAEA], the UN nuclear watchdog, has said it has credible evidence that Iran is continuing its attempts to develop atomic weapons.

The Vienna-based watchdog is "increasingly concerned" about possible work in Iran to develop a nuclear payload for a missile, the IAEA said in a confidential report obtained by the Reuters news agency on Friday.

It also said Iran was installing equipment to enrich uranium at an underground bunker near the holy city of Qom, which would be better protected than other facilities.

Shifting enrichment activity to such a subterranean site could offer greater protection against any attacks by Israel or the US, which have both said they do not rule out pre-emptive strikes to stop Iran getting nuclear weapons.

At a separate research and development site, Iran had started enriching uranium experimentally with a more advanced model of centrifuge than the erratic, 1970s vintage machine it has been using for years, the report said.

One diplomat familiar with the Iran probe said some information concerned activities allegedly carried out as recently as last year.

'Baseless allegations'

Ali Asghar Soltanieh, Iran's envoy to the IAEA, dismissed what he called "baseless allegations" about Iran's programme.

But he nevertheless described the report as a step in the right direction, saying it showed that Iran had fully co-operated with the IAEA by allowing a senior nuclear inspector full access to atomic sites during a five-day visit last month.

"This new trend of positive co-operation between Iran and the IAEA should continue," Soltanieh told Reuters.

Western diplomats have dismissed Iran's attempt to show increased openness about its nuclear work, saying it is still failing to address core concerns about its aims.

The developments highlighted in the IAEA's latest quarterly inspection report are likely to fan Western suspicions about the underlying nature of Iran's nuclear activity, which Western powers suspect is aimed at developing a nuclear weapons programme.

It may provide additional arguments for the US and its European allies to further tighten the sanctions pressure on Iran, one of the world's largest oil producers.