The UN's International Atomic Energy Agency (IAEA) said in a confidential report circulated to diplomats and obtained by Reuters that Iran planned a test of a uranium conversion facility soon.

It said Iranian technicians had told IAEA inspectors they planned to convert 37 tons of "yellowcake" uranium into uranium hexafluoride -- which one Western nuclear expert said could in theory be enough to build five atomic bombs.

Iran insists the only purpose of its nuclear program is electricity generation. It denies having done any uranium enrichment close to the level needed to fuel a power plant, let alone weapons.

The U.N. agency said it "continues to make steady progress in understanding the (Iranian nuclear) program," though its investigation is not complete.

"It is a work in progress," a senior Western diplomat said of the investigation, adding that the IAEA's sixth such report on Iran was "a mixed bag."

The report will be discussed at a meeting of IAEA Board of Governors in September, when Washington is expected to renew its call for the board to report Tehran to the U.N. Security Council for violating its non-proliferation obligations. However, diplomats at the U.N. say Washington has few supporters.

David Albright, a former U.N. weapons inspector and currently president of the Institute for Science and International Security (ISIS) said the test planned by Iran could produce 100 kg of weapons-grade highly-enriched uranium.

Speaking purely hypothetically, Albright said: "It's roughly enough for about five crude nuclear weapons of the type Iran could conceivably build." But he added: "There's nothing in this report that says 'Gotcha Iran!"