``Iran has resumed the conversion of uranium under the supervision of the International Atomic Energy Agency,'' Iran's Atomic Energy Agency vice-president Mohammad Saidi declared.

The move, which risks seeing Iran hauled before the UN Security Council, comes after Iran rejected as ``unacceptable'' a package of EU proposals aimed at guaranteeing that it was not trying to build a nuclear weapon.

Iran had insisted it would resume the process despite numerous warnings from the United States and the Europeans.

Conversion turns uranium ore, or yellowcake, into a feed gas for enriching uranium, which can be the fuel for reactors or the explosive core of atom bombs.

IAEA inspectors installed security cameras to monitor the initial conversion process and an AFP correspondent saw technicians in protective clothing opening a barrel of yellowcake.

The EU, which has been negotiating with Iran for nine months, had already called for an emergency meeting today of the IAEA board, during which an ultimatum demanding a commitment to suspend nuclear fuel work is expected.

The crisis has escalated since Iran's ultra-conservative President Mahmood Ahmadinejad took office last week, with the new leader Monday putting a fellow hardliner in charge of the nuclear dossier.

Ali Larijani, a former boss of state-run media, who has distinguished himself by his intransigency over Iran's nuclear ambitions, would soon take up the post, a government spokesman said.

Larijani replaces Hassan Rowhani, who has managed to maintain dialogue with the West through thick and thin over the last two years, and his appointment will worry some Western negotiators.

Larijani has described giving up Iran's right to uranium enrichment in exchange for EU incentives as like swapping ``a pearl for a sweet.''

Iran agreed in November to suspend uranium conversion and enrichment while negotiations on its nuclear program were underway with the EU three of Britain, France and Germany.

But last week it rejected an EU package of trade, technology and security incentives to abandon the nuclear fuel cycle work, sparking warnings that negotiations with the EU could be over and cause Security Council intervention.

Iran's conservative-controlled parliament had demanded that uranium conversion resume ahead of today's meeting of the IAEA governors, outside the watchdog's supervision if necessary.

The EU incentives aim to allow the Islamic republic the right to pursue peaceful nuclear energy activities as long as it refrains from fuel-cycle work that could help it make atomic weapons.

The US, which backs the EU offer, charges that Iran is using its civilian program as a cover to develop nuclear weapons - something Iran has always denied.

Saidi said that Iran had started processing uranium into a substance called uranium tetrafluoride (UF4) and would turn to the feed gas known as uranium hexafluoride (UF6) by tomorrow.

The production would be stocked in Iran for use when the country resumes enrichment, he said, adding that there was never any intention of it being exported.

And Teheran insists that actual enrichment remains suspended at the underground Natanz plant and that it still wants to pursue negotiations with the Europeans.

Foreign Ministry spokesman Hamid Reza Asefi said Sunday that Iran, which insists it has the right to enrich uranium under the nuclear Non-Proliferation Treaty, was unconcerned about possible Security Council action. That might happen sooner rather than later.

``We've said all along that should Iran break the seals and restart uranium enrichment at Isfahan or anywhere else, we would think an appropriate response would be a referral to the United Nations,'' a State Department official said after the latest turn of events at Isfahan. AGENCE FRANCE-PRESSE