Iranian state television quoted officials who said the process of enriching uranium to a higher level started Tuesday at Iran's Natanz facility in the presence of International Atomic Energy Agency inspectors.
Iran told the IAEA Monday of its plans to enrich uranium to 20 % in order to fuel a medical nuclear reactor.
Western powers are concerned that if Iran is able to enrich uranium to 20 %, it could eventually produce weapons-grade uranium through the same process.
Iran insists its nuclear program is only for peaceful purposes.
The U.N. Security Council has imposed three rounds of sanctions against Iran for its failure to halt uranium enrichment.
A U.S. Defense Department spokesman said Tuesday the United States wants a fourth round of sanctions passed "within weeks, not months."
In Paris Monday, U.S. Defense Secretary Robert Gates and French President Nicolas Sarkozy said they will push for strong new sanctions.
The U.N. had brokered a deal with a group of world powers that called for Tehran to ship its uranium abroad for enrichment and have it returned as reactor fuel. But Iran had given mixed signals about its willingness to accept the deal.
A Chinese Foreign Ministry spokesman Tuesday called for the parties involved in the negotiations to continue work towards finding a solution.
China has been opposed to setting additional sanctions against Iran.
The Voice of America has contributed to the report.