The UN nuclear watchdog said it confronted Iran for the first time with Western intelligence reports showing work linked to making atomic bombs and that Tehran had failed to provide satisfactory answers.

The United States passed the intelligence, which came mainly from a laptop spirited out of Iran, to the International Atomic Energy Agency (IAEA) in 2005 but out of fear for its spies only authorised the IAEA to present it last month, diplomats said.

The IAEA said Iran had dismissed the intelligence as 'baseless' or 'fabricated', but had provided increased co-operation on other issues in the past few months.

Iran's increased transparency amounted to a doubled-edged sword as it reaffirmed Tehran was forging ahead with uranium enrichment in defiance of UN Security Council demands to stop all proliferation-sensitive nuclear activity.

The IAEA findings, which also said Iran had failed to clear up all outstanding questions by an agreed February deadline, may spur the Security Council to adopt a third round of sanctions against the Islamic Republic as early as next week.

The US, which has accused Iran of having a secret programme to build nuclear weapons, said the IAEA's report had produced a good reason to impose new sanctions.

Senior diplomats from Britain, France, Germany, the United States, China and Russia would meet in Washington on Monday to discuss the next steps over Iran, Western officials said.

Iran, which says its nuclear programme is only for power generation to meet the growing demands of its economy, hailed the IAEA's comments as a victory because it said the watchdog had found Tehran was pursuing peaceful activities.

In unusually strong wording, the IAEA said in a report Iran had not so far explained documentation pointing to undeclared efforts to 'weaponise' nuclear materials by linking uranium processing with explosives and designing of a missile warhead.

Publishing details of the intelligence, the IAEA described tests on a 400-metre firing shaft seen as 'relevant' to atomic arms research and a schematic layout of a missile cone 'quite likely to be able to accommodate a nuclear device'.-Reuters