Iran has begun the process of producing enriched uranium metal, it has told the global nuclear watchdog.
Tehran informed the International Atomic Energy Agency (IAEA) that the process was to develop fuel for a research reactor.
But uranium metal could also be used to make the core of a nuclear bomb.
European powers said Iran's move breached a nuclear deal and threatened talks to revive it. The US called it an "unfortunate step backwards".
Iran nuclear crisis: The basics
World powers don't trust Iran: Some countries believe Iran wants nuclear power because it wants to build a nuclear bomb - it denies this.
So a deal was struck: In 2015, Iran and six other countries reached a major agreement. Iran would stop some nuclear work in return for an end to harsh penalties, or sanctions, hurting its economy.
What is the problem now? Iran re-started banned nuclear work after former US President Donald Trump pulled out of the deal and re-imposed sanctions. Even though new leader Joe Biden wants to re-join, both sides say the other must make the first move.
Under the nuclear deal, Iran agreed not to produce uranium metal or conduct research and development (R&D) on uranium metallurgy for 15 years.
But in December, Iran's parliament passed a law requiring the government to bring the metallic uranium factory at the Isfahan Fuel Fabrication Plant on line within five months.
media captionIran's nuclear programme: What's been happening at its key nuclear sites?
The law also called for the production of enriched uranium with a 20% concentration of the most suitable isotope for nuclear fission, called U-235. Uranium enriched to that level can be used in research reactors, while weapons-grade uranium is 90% enriched or more.
Iran began producing 20%-enriched uranium in January and the following month it started making uranium metal.
Iranian officials said at the time that the uranium metal was needed to make an advanced fuel for the Tehran Research Reactor, which is devoted mainly to making radioisotopes for medical purposes.
On Tuesday, the IAEA said its Director General Rafael Grossi had informed member states that Iran intended to use 20%-enriched uranium in making fuel for the Tehran Research Reactor. "In doing so, as part of a multi-stage process, Iran will also produce uranium metal enriched up to 20% U-235," it added.
The British, French and German foreign ministers said in a joint statement that they had "grave concerns" about Iran's decision.
"Iran has no credible civilian need for uranium metal R&D and production, which are a key step in the development of a nuclear weapon."
"With its latest steps, Iran is threatening a successful outcome to the Vienna talks despite the progress achieved in six rounds of negotiations," they added.
IMAGE COPYRIGHTREUTERSimage captionTalks in Vienna aimed at reviving the nuclear deal talks were adjourned on 20 JuneRepresentatives of Iran and the five world powers still party to the deal have been meeting in the Austrian capital since April, with US envoys participating indirectly.
They are attempting to negotiate a compromise agreement that would see the US rejoin the accord and lift its sanctions, and Iran return to full compliance.
US state department spokesperson Ned Price said that although they were not setting a deadline for the talks, "as time proceeds Iran's nuclear advances will have a bearing on our view of returning to the JCPOA".
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