Tehran is expected to announce the major escalation in its uranium enrichment drive during Islamic Revolution anniversary celebrations running until February 11, jacking up tensions with Western powers, which pushed through UN sanctions against it.

Iran's reported refusal to allow the watchdog International Atomic Energy Agency (IAEA) to hook up cameras in the subterranean centrifuge hall at Natanz is not illegal as long as nuclear activity has not yet begun.

But Tehran's move, following a ban on 38 of 200 inspectors designated to work in Iran, would up the ante in a showdown with Western powers and underline resentment over their bid to halt a nuclear programme Iranian officials insist is entirely peaceful.

The West suspects Iran, which hid enrichment research from the IAEA for 18 years, is striving to build atomic bombs behind the facade of a civilian energy programme. IAEA probes have found no proof of bombmaking, but raised many questions.

Vienna-based diplomats familiar with IAEA operations said Iran blocked inspectors earlier this week from installing surveillance cameras in the Natanz underground complex.

"The cameras need to be (functional) before nuclear material is introduced into the centrifuges for enrichment," said one diplomat, who like others asked for anonymity to discuss confidential information.

Talks had begun to resolve the dispute, the diplomat said.

"There is still time to resolve the problem before any real centrifuge operations start," said another Vienna diplomat.

"Iran is not breaking its (non-proliferation) Safeguards Agreement with the IAEA here because nuclear activity has not begun in the plant," a third diplomat told Reuters.

"But their behaviour reflects the rising tensions. They have no incentive to be transparent since they feel the UN (sanctions) resolution is illegal, and they seem to want to approve these cameras as part of a negotiated settlement."