AFP - Iran, already at risk of fresh UN sanctions over its atomic drive, gave the West an "ultimatum" on Saturday to accept a uranium swap deal or else it will produce its own nuclear fuel for a Tehran reactor.

"The international community has just one month left to decide" whether or not it will accept Iran's conditions, Foreign Minister Manouchehr Mottaki was quoted as saying on state television.

"This is an ultimatum."

Iran, which rejected a December 31 deadline to accept a UN-brokered deal, said on Tuesday it was ready to swap abroad its low-enriched uranium for nuclear fuel, while insisting the exchange happen in stages.

Tehran had already rejected a proposal by the UN nuclear watchdog, the International Atomic Energy Agency, to ship most of its low-enriched uranium to Russia and France for processing into fuel for the research reactor.

It proposed in December to exchange 400 kilograms (880 pounds) of uranium on its Gulf island of Kish, but this was bluntly dismissed by the United States, with the IAEA already having ruled out an exchange on Iranian soil.

President Mahmoud Ahmadinejad told AFP in December that Iran was ready to strike a uranium enrichment deal if the West respects the Islamic republic and stops making threats.

And Mottaki said in the same month that the country was open to exchanging uranium in Turkey.

World powers have been pushing Iran to accept the UN-brokered deal and are also mulling plans to impose fresh UN sanctions against it for dismissing the year-end deadline.

Iran is already under three sets of UN sanctions for refusing to abandon its sensitive programme of uranium enrichment, the process which produces nuclear fuel or, in highly extended form, the fissile core of an atomic bomb.

The United States, Israel, and other world powers suspect Tehran is making an atomic bomb under the guise of a civilian nuclear programme.

Iran denies the charge and says its purpose is entirely peaceful.

On Wednesday, US State Department spokesman Darby Holladay said the West would still focus on "dual-track policy" regarding the Islamic republic.

"Even as we leave the door open to engagement," world powers agree that Iran will pay the consequences if it does not meet its international nuclear obligations, Darby told AFP.

The UN Security Council's five permanent members -- the United States, Russia, China, France, and Britain -- plus Germany are "in the process of considering next steps consistent with our dual-track policy," he said.

A UN diplomatic source in New York has said preliminary work on drafting a sanctions resolution was likely to begin in mid-January.

Iran's defiant "ultimatum" comes as the country faces its worst domestic crisis whereby protesters against Ahmadinejad's June re-election have been harshly confronted by the authorities.

The Washington Post said on Wednesday the United States was weighing targeted sanctions against members of Tehran's government as it hardens its line towards Iran after bloody crackdowns on protests.

But Italian Foreign Minister Franco Frattini told Corriere della Sera newspaper on Saturday that Europe must not isolate Iran over human rights, stressing Tehran's role in negotiating world conflicts.

"We must not burn every bridge (with Iran) because Iran is a key figure for the Afghan crisis, for the crisis in the Middle East and over the very sensitive nuclear question", Frattini said.

"We must act so that Iran has a positive influence (on all these issues), so that it is a strength, it is respected, and not a concern", Frattini said. "Iran has the right to be a civil nuclear power, not a military one".