"The presidency urgently appeals to Iran to reconsider its policy and to comply with the demands of the international community," the EU presidency said in statement.

It said the European Union has taken note of the latest report of the International Atomic Energy Agency (IAEA) on Iran with "great concern."

In the report, IAEA director Mohamed ElBaradei accused Iran of failing to cooperate with his agency's inspectors and said that he agreed with US assessments that Iran could acquire nuclear weapons within the next decade.

"In other words three to eight years from now," he said.

The EU said the report confirmed that Iran has flouted two recent UN resolutions demanding that the Islamic republic suspend uranium enrichment, which is at the heart of its standoff with the West.

"Iran has disregarded these appeals and continued to drive forward its nuclear program as well as restricting its cooperation with the IAEA."

EU urges Tehran to prove "peaceful" program

The EU presidency called on Tehran to cooperate with IAEA inspectors in order to convince the world of its claims that its nuclear program is of "an exclusively peaceful nature."

It said Iran should use talks between EU foreign policy chief Javier Solana and Iran's top nuclear negotiator on May 31 to signal a change in policy that will allow full negotiations to resolve the nuclear standoff to resume.

Iran's hard-line President Mahmoud Ahmadinejad reacted defiantly to the report and to threats of fresh sanctions from the West, saying Iran would not retreat "a single step" on its nuclear program.

Meanwhile, France and the United States warned that the UN Security Council would have to discuss a third package of sanctions measures against Iran unless it made a major about-turn by freezing sensitive nuclear work.

But President Mahmoud Ahmadinejad indicated the Islamic republic was in no mood to cave into the demands of the West.

"The enemies aim to prevent us from using peaceful nuclear technology, not for scientific reasons but because they want to eradicate the roots of the principles of the Islamic republic," he said on Thursday, according to the ISNA news agency.

"Therefore if we stop, even for a moment, they will achieve their aims," he told a group of elite Revolutionary Guards commanders.

Ahmadinejad made the comments a day after the International Atomic Energy Agency said that Iran was making substantial advances in uranium enrichment in defiance of world demands to stop.

New sanctions threat

The IAEA board will review its assessement in June, paving the way for a Security Council meeting on Iran that could agree new sanctions in addition to existing measures against Iran's nuclear and ballistics industries.

New French Foreign Minister Bernard Kouchner said Paris backed the rapid adoption of "new sanctions" against Iran if it maintains its refusal.

"If that is the case, I hope that we can rapidly adopt new sanctions that will show Iran that the path it has chosen is unacceptable and will only drive it into growing isolation," said Kouchner, who was on a visit to Lebanon.

US warning

The United States said that unless Iran agreed to a longstanding offer to suspend sensitive nuclear work as a prelude to negotiations, there was no other option than a drive for further sanctions.

"Iran is once again thumbing its nose at the international community," US Under Secretary of State Nicholas Burns said after the IAEA report.

"Should it turn down the offer again, I would think what you'd see is a strong drive" by the US Security Council for a third sanctions resolution.

At issue is Iran's refusal to suspend uranium enrichment, a process that can be used both to make nuclear fuel and highly enriched uranium for the explosive core of an atomic bomb.

The United States accuses Iran of seeking nuclear weapons but the Islamic republic insists it just wants to generate energy for a growing population.