Iran has resumed sensitive fuel cycle work at its uranium conversion facility near the city of Isfahan.
UN officials say they have installed monitoring equipment
The UN's nuclear watchdog, the IAEA, confirmed work had begun at the plant, after it was suspended in 2004 to allow for negotiations with the EU.
The US and EU had previously warned that any resumption could lead to Iran being referred to the UN Security Council for economic sanctions.
Iran's move had been expected and comes on the eve of an IAEA crisis meeting.
IRAN'S NUCLEAR STANDOFF
September 2002: Work begins on Iran's first nuclear reactor at Bushehr
December 2002: Satellite photographs broadcast on US television reveal the existence of nuclear sites at Arak and Natanz. Iran agrees to an IAEA inspection
September 2003: IAEA gives Iran weeks to prove it is not pursuing atomic weapons
November 2003: Iran suspends uranium enrichment and allows tougher inspections; IAEA says no proof of any weapons programme
June 2004: Iran rebuked by IAEA for not fully co-operating with inquiry into nuclear activities
November 2004: Iran suspends uranium enrichment as part of deal for negotiations with EU
August 2005: Iran rejects EU proposals and resumes work at Isfahan nuclear plant
On Saturday, Iran rejected European proposals to persuade it to give up its controversial programme.
The International Atomic Energy Agency is meeting on Tuesday to discuss the deadlock. It will submit a report to the Security Council, which could then consider the possibility of sanctions.
A US state department official told the AFP news agency reports Iran had restarted nuclear activities were "unfortunate" and that the US expected Tehran to be taken before the United Nations.
Mohammad Saeedi, deputy head of Iran's Atomic Energy Organisation, said that work at Isfahan had resumed under the supervision of the IAEA, which had installed surveillance equipment.
A reporter for the Reuters news agency said she saw two workers at the Isfahan plant lifting a barrel full of uranium yellowcake, opening its lid and feeding it into the processing line.
"We are restarting work in Isfahan stage by stage, as technical work requires to do so. Today, we restarted work for production of AUC [ammonium uranyl carbonate]," Mr Saeedi said.
The AUC unit had not been sealed by IAEA inspectors, but Mr Saeedi said that inspectors from the agency would remove seals from other parts of the facilities on Tuesday after installing monitoring equipment, making the plant fully operational.
The Isfahan plant is Iran's main uranium conversion facility. Conversion is an early stage in the nuclear fuel cycle, turning raw uranium - known as yellowcake - into the feedstock for enriched uranium.
Uranium enriched to a low level is used to produce nuclear fuel, while further enrichment makes it suitable for use in atomic weapons.
Iran insists it wants only to use its facilities to produce power, but the US suspects it of running a secret nuclear weapons programme.
Under international pressure, Iran suspended uranium conversion and enrichment activities in November 2004, but it said the move was only temporary.
Iran says it is still interested in holding negotiations with the EU, but says it must have the right to develop its own nuclear fuel.
The Iranian government on Monday replaced its chief nuclear negotiator, Hassan Rohani, with Ali Larijani, a conservative former head of state broadcasting who is known to have close ties with Iran's supreme leader, Ali Khamenei.
The appointment was made by newly elected conservative President Mahmoud Ahmedinejad, two days after he was sworn in. It is being seen as a hardening of Iran's position.