Experts said that could put Tehran on the road to making the material needed to arm a warhead within months.
"I declare here that with the grace of God, the Iranian nation will produce 20 per cent fuel and anything it needs itself," Ahmadinejad told a cheering crowd in the central city of Isfahan on Wednesday.
Iran denies any interest in developing nuclear arms, and Iranian President Mahmoud Ahmadinejad's speech made no suggestion the Islamic Republic was planning to turn its enriched uranium stockpile into material that could be used in nuclear warheads.
Ahmadinejad said Tehran was ready to further enrich some of its present stockpile now at 3.5 per cent to 20 per cent, the grade needed to create fuel for a small medical research reactor in the Iranian capital.
Uranium enriched at low levels can be used as fuel for nuclear energy, but when enriched to 90 per cent and above, it can be used as material for a weapon. The United States and five other world powers have been trying to win Iran's acceptance of a deal under which Tehran would ship most of its low-enriched uranium stockpile abroad to be processed into fuel rods for use in the research reactor.
That would leave Iran at least temporarily without enough enriched uranium to produce a bomb. However, after signalling in October that it would accept the proposal, Iran has since balked, presenting counterproposals that would keep the stockpile in Iran.
On Wednesday, Ahmadinejad went a step further, vowing Iran would enrich the uranium needed for the research reactor itself.
"We told them, 'Give us the 20 per cent fuel" needed for the research reactor in an exchange, the Iranian leader said in Isfahan. "But then they started adding conditions."
"So we said, 'If you want to give us the fuel, we'll take it. If not, then fine and goodbye."'
Some 33 to 66 pounds (15 to 30 kilograms) of uranium enriched to levels above 90 per cent would be needed to produce a nuclear bomb. Iran has about 3,300 pounds (1,500 kilograms) of 3.5 per cent, or low-enriched uranium enough to produce highly enriched material for two such weapons.
David Albright of the Washington-based Institute for Science and International Security, which has tracked Iran for signs of covert proliferation, said the process of moving from low-enriched to 20 per cent enriched uranium would take months, but the next stage enriching to weapons grade would require only an additional "couple of weeks."
"They're 90 per cent on the way" toward weapons-grade uranium once they have enriched to 20 per cent, Albright said.
A nuclear expert familiar with Iran's atomic activities said Iran could be enriching to higher levels within months after reconfiguring and testing its centrifuges, the machines that spin uranium gas into enriched material. The expert a government official from one of the five permanent U.N. Security Council nations demanded anonymity because he was not authorized to comment on the issue.
Ahmadinejad's comments were the latest in a string of defiant statements by the Islamic Republic in a furious reaction to criticism by the 35-nation board of the International Atomic Energy Agency.
Last week, the board endorsed a resolution from the six powers the U.S., Russia, China, Britain, France and Germany in a lopsided majority vote.
That document criticized Iran for defying a U.N. Security Council ban on uranium enrichment and continuing to expand operations at the Natanz plant under IAEA monitoring. It also censured Iran for secretly building a second facility and demanded that it immediately suspend further construction.
It noted that IAEA chief Mohamed ElBaradei, who has since stepped down, could not confirm that Tehran's nuclear program is exclusively geared toward peaceful uses and expressed "serious concern" over Iran's stonewalling of IAEA allegations it tried to make nuclear arms.
On Sunday, Ahmadinejad announced Iran would build 10 more uranium enrichment facilities, despite the widespread belief the country simply does not have the resources to do so.
Though Iran has yet to lodge an official rejection of the U.N.-backed proposal to send its low-enriched uranium stockpile abroad for further processing, the series of defiant statements over the past few days have sent a clear signal the idea is all but dead.
British Prime Minister Gordon Brown said last month that the U.N. offer has been "comprehensively rejected" by Iran. A diplomat from one of the six powers said Wednesday that America's Western allies were waiting for Washington to formally declare the wait for an Iranian response over, probably by the end of this month.
At that time, he said, the six nations would likely focus on a fourth set of U.N. Security Council sanctions on Tehran for defying its enrichment ban amid signs that Russia and China, Tehran's traditional allies on the council, might be more willing to vote for new penalties. The diplomat demanded anonymity in order to discuss confidential information.
In his comments Wednesday, Ahmadinejad signalled Iran was ready for heightened confrontation, saying it was no longer ready to negotiate with the international community over the enrichment plan or any other aspects of its nuclear program.
"You should know that even if you sizzle ... the Iranian nation won't talk to you concerning the nuclear issue," he said.