The United States says Iran's enrichment of uranium to levels close to weapons-grade is a further escalation of its violation of United Nations resolutions.
The UN's International Atomic Energy Agency (IAEA) has confirmed Iran has begun enriching uranium to 20% at its northern Fordo plant near the holy city of Qom. Civilian nuclear energy plants require just 3.5% enrichment.
The BBC reports analysts say 20% enrichment is an important step towards making uranium weapons-grade.
Tehran says it is for purely peaceful purposes, insisting that enriched uranium is needed to make isotopes to treat cancers.
But US State Department spokesperson Victoria Nuland said the high level of enrichment raised further doubts about Iran's peaceful intentions.
"The fact that the IAEA has made clear that their enriching to a level that's inappropriate is obviously a problem.
"We are closely monitoring their nuclear programme in general and this development is not a surprise to us."
Tensions have been rising between Iran and the West for several months.
Last week, the US imposed sanctions on Iran's central bank and the European Union decided in principle to impose an oil embargo on the country.
France says Iran's enrichment activities are a grave violation of international law, while Britain says the action is provocative.