"Suspending enrichment is not on the agenda," foreign ministry spokesman Mohamamd Ali Hosseini told reporters.

He was responding to media reports about a "time-out" proposed to Iran by world powers, which would halt a third set of UN sanctions against Tehran if it stopped expanding its uranium enrichment work, in a bid to restart talks.

"Some media and European officials have talked about a plan which includes suspending our nuclear activities. This is nothing new, it was brought up by the (International Atomic Energy) Agency chief," he said.

IAEA chief Mohamed ElBaradei had earlier proposed a plan, which would lift sanctions against Iran if it froze all its enrichment activities.

Hosseini said that different aspects of the "time out" plan were discussed in meetings between Iran's top nuclear negotiator Ali Larijani and EU foreign policy chief Javier Solana.

"No decisions have been made no far. If it is necessary, the plan will be further discussed," he said.

Iranian leaders vowed to press on with the country's nuclear programme, which is feared to be a cover for secret weapons development. Iran denies the allegation, insisting its atomic work is aimed at peaceful ends.

Khamenei backed the defiant policy of President Mahmoud Ahmadinejad who has vowed Iran will not back down on its nuclear work in the face of international pressures.

"Iran's foreign policy has always been offensive. Unfortunately at certain times there was a defensive policy, which was a mistake," Khamenei said in a ceremony marking the second anniversary of Ahmadinejad's election.

"The policy of resistance to defend Iran's (nuclear) right will continue without any faltering," said the president.

The UN Security Council has already imposed two sets of sanctions against Iran after it failed to heed ultimatums to suspend uranium enrichment, the process that makes nuclear fuel but in highly extended form can also produce the fissile core of an atomic bomb.

The West suspects that Iran's nuclear programme is a cover for a push to develop the bomb, although Iran has said repeatedly that it is for civilian purposes only.

The Security Council could toughen Iran sanctions, which now target people and institutions involved in its nuclear and missiles programmes, and impose travel bans, freezing of bank accounts and inspections of Iranian cargo ships and aircraft.

But in comments published on Saturday, Ahmadinejad brushed off the threat saying: "They cannot hurt us, not that they don't want to but because they are incapable of doing so as they are in a difficult situation."

Ahmadinejad added, "The global arrogance cannot stop the Iranian nation," in an allusion to the United States, the main ally of Israel, the only country in the Middle East believed to have a nuclear arsenal.

Washington has never ruled out military action to stop Iran's nuclear drive.

Iran's ambassador to the International Atomic Energy Agency said on Saturday that UN resolutions had only hastened Iran's enrichment work.

"At the moment Iran has speeded up its enrichment activities, so Security Council resolutions have had a positive effect on this work," Ali Asghar Soltanieh told the student ISNA news agency.

He also said that construction work on a heavy water reactor in Arak, in central Iran, was continuing without delay, despite IAEA calls to halt the work.

A senior diplomat with ties to the IAEA said that Iran was already operating more than 1,300 centrifuges for enrichment by mid-May at its Natanz plant and could have 3,000 by the end of July.

Under ideal conditions they could produce enough highly enriched uranium to produce a nuclear weapon within a year at most.

But Iran says it is willing to resolve questions over the nature of its nuclear programme with the IAEA, which has been unable to fully verify Iran's atomic work.

Soltanieh announced meanwhile that IAEA deputy director general Olli Heinonen will visit Tehran from July 11 to 13 to "examine a work plan to respond to all remaining issues over Iran's nuclear programme."

Soltanieh told ISNA that Heinonen, who heads the Department of Safeguards, will be accompanied by IAEA officials "who are not inspectors and will not carry out any inspections into Iran's nuclear facilities."

Iran's top nuclear negotiator Ali Larijani invited the IAEA team to Tehran after talks last week in Vienna with UN watchdog chief Mohamed ElBaradei.

Larijani had undertaken to define within two months an action plan with the IAEA, which is demanding the possibility of checking on the ground whether Iran's nuclear programme has military ambitions.

Soltanieh said the visit will precede a new meeting between Larijani and EU foreign policy chief Javier Solana who have held talks aimed at finding a way out of the standoff.