By Reza Derakhshi
TEHRAN (Reuters) - President Mahmoud Ahmadinejad on Sunday told Iran's Atomic Energy Organization to start work on producing nuclear fuel for a Tehran research reactor, further raising the stakes in a dispute with the West.
Ahmadinejad's announcement is likely to irritate Western powers which want Iran to send most of its stockpile of low-enriched uranium (LEU) abroad in return for higher-refined fuel for the Tehran reactor producing medical isotopes.
Last year, Iran and six major powers discussed making such a swap as a way to ease international concern about Tehran's nuclear ambitions, but they have failed so far to agree on how to implement the plan.
Iranian officials have repeatedly said the Islamic Republic can make fuel enriched to 20 percent itself if there is no agreement on obtaining the material from abroad.
"We had told them (the West) to come and have a swap, although we could produce the 20 percent enriched fuel ourselves," Ahmadinejad said in a televised speech.
"We gave them two-to-three months' time for such a deal. They started a new game and now I (ask) Dr Salehi to start work on the production of 20 percent fuel using centrifuges," he said, referring to atomic energy chief Ali Akbar Salehi.
But he added at a ceremony marking Iran's laser technology achievements: "The doors for interaction are still open."
Ahmadinejad also said Iran had the capability to enrich uranium using laser technology, without elaborating.
On Tuesday, the president had appeared for the first time to drop long-standing conditions Tehran had set for accepting the U.N.-brokered fuel proposal, saying Iran was ready to send its enriched uranium abroad in exchange for nuclear fuel.
But the United States and Germany said on Saturday they saw no sign Tehran would make concessions on its nuclear program, despite upbeat comments from Iran's Foreign Minister Manouchehr Mottaki over prospects for a deal.
An accord on exchanging fuel could mark a breakthrough in the long-running dispute over Iran's nuclear program, which the West fears could be used to produce an atomic bomb. Iran, a major oil producer, says it only aims to generate electricity.
Mottaki said on Friday he saw good prospects for agreement, but restated two conditions that could be stumbling blocks -- that any fuel exchange must be simultaneous and that Iran would determine quantities involved.
He said on Saturday he had "a very good meeting" with the head of the U.N. nuclear agency on the fuel swap plan.
International Atomic Energy Agency (IAEA) Director-General Yukiya Amano said he wanted dialogue with Iran to speed up.
Iranian Foreign Ministry spokesman Ramin Mehmanparast told ISNA news agency on Sunday: "Iran's stance on the nuclear fuel swap has not changed. Iran is still ready to do such an exchange and if the other side is ready we can negotiate over the details of such a deal."
(Writing by Fredrik Dahl; editing by Dominic Evans)