Iran has reduced demands for the size of its future nuclear enrichment programme in talks with world powers although Western governments are urging Tehran to compromise further, Western diplomats said.

The diplomats, who spoke to Reuters at the start of a two- week round of negotiations between Iran and the US, Britain, France, Germany, Russia and China, said it would still be hard to clinch a deal by the self-imposed July 20 deadline.

Tehran's shift relates to the main sticking point in the talks - the number of uranium enrichment centrifuges Iran can maintain in a deal in exchange for a gradual end of sanctions.

Ending the decade-long dispute with Iran is seen as central to defusing tension and averting a new Middle East war.

"Iran has reduced the number of centrifuges it wants but the number is still unacceptably high," a Western diplomat told Reuters on condition of anonymity and without further detail.

A senior U.S. administration official told reporters that Iran's future enrichment capacity under any deal would have to be "a fraction of what they currently have."

On Wednesday, a senior Iranian official told Reuters Tehran has refused to back down from its demand to maintain 50,000 operational centrifuges, a figure Western officials say is too high for a strictly civilian nuclear energy programme.

Iran, a major oil producer, says it plans a future network of nuclear power plants to diversify its energy supply.

"Iran needs at least 50,000 centrifuges and not 49,999," the Iranian official said. "The other party is talking about a few thousands and this is unacceptable for Iran."

But the Western diplomats said that behind closed doors Iran had signaled it would settle for a lower figure, but declined to specify the number so as not to disrupt the negotiations.

Iran now has over 19,000 centrifuges, though only around 10,000 of those are running. The powers want that number cut to the low thousands, to ensure Iran cannot quickly produce enough high-enriched uranium for a bomb, should it choose to do so.

Tehran denies allegations from Western powers and their allies that it is developing a nuclear-weapons capability behind the screen of a declared civilian atomic energy programme.

IRAN "WILL NOT KNEEL"

Iranian officials declined to comment directly on the reported concession on centrifuges.

"As we said, we are ready to assure the world that we are not after the bombs," another senior Iranian official told Reuters. "We have shown our goodwill but will not yield to demands that violate our rights.

"A few thousand more or less centrifuges makes no difference," he added.

Western governments are exerting pressure for Iran to compromise further to nail down a deal by July 20.

U.S. Secretary of State John Kerry chided Tehran on Tuesday in a Washington Post article, saying Iran's "public optimism about the potential outcome of these negotiations has not been matched, to date, by the positions they have articulated behind closed doors".

On Wednesday, British Foreign Secretary William Hague echoed Kerry's criticism, saying "We will not accept a deal at any price".

"A deal that does not provide sufficient assurances that Iran will not develop a nuclear weapon is not in the interests of the UK, the region or the international community," he said.

Iranian Foreign Minister Mohammad Javad Zarif, in an apparent response to Kerry's remarks, said Tehran was ready to take concrete steps to ensure its nuclear programme is peaceful but will not "kneel in submission" to do a deal.

Centrifuges are not the only stumbling block in the talks. One of the more sensitive matters is Iran's ballistic missile programme, which is banned under U.N. Security Council sanctions imposed on Tehran between 2006 and 2010 over its refusal to suspend enrichment and other activity with bomb applications.

The United States has insisted that Iran's ballistic missile capabilities be covered under the potential nuclear deal but Tehran does not want that to be on the table.

"Iran's defence system is not up for negotiation," Deputy Foreign Minister Abbas Araqchi, who along with Zarif is leading the Iranian delegation in Vienna, was quoted as saying on Wednesday by the Iranian student news agency ISNA.

Other disputes include the duration of any nuclear deal, the timetable for ending the sanctions, and the fate of a research reactor that could yield significant quantities of plutonium, an alternative fuel for nuclear weapons.

The current round of talks in the Austrian capital will run until at least July 15. – Reuters