Corrected - Iran bars U.N. inspectors in nuclear row

By Hossein Jaseb and Sylvia Westall

TEHRAN/VIENNA (Reuters) - Iran has barred two U.N. nuclear inspectors from entering the Islamic Republic, increasing tension less than two weeks after Tehran was hit by new U.N. sanctions over its disputed atomic programme.

The International Atomic Energy Agency (IAEA) rejected Iran's reasons for the ban and said it fully supported the inspectors which Tehran has accused of reporting wrongly that some nuclear equipment was missing.

"The IAEA has full confidence in the professionalism and impartiality of the inspectors concerned," spokesman Greg Webb said in an unusually blunt statement which described the IAEA's report issued last month as "fully accurate."

Iran, which has declared the two inspectors persona non grata, made clear it would still allow the Vienna-based U.N. watchdog to monitor its nuclear facilities, saying other experts could carry out the work.

"Inspections are continuing without any interruption," Iran's IAEA envoy Ali Asghar Soltanieh told reporters in Vienna.

"(But) we have to show more vigilance about the performance of the inspectors to protect the confidentiality," he said, criticising alleged leaks by inspectors to Western media.

Ties between Iran and the IAEA have become more strained since Yukiya Amano took over as head of the agency in December.

The Japanese diplomat has taken a tougher approach on Iran than his predecessor Mohamed ElBaradei, with the IAEA saying in a February report that Iran could be trying to develop a nuclear-armed missile now, and not just in the past.

Iran accused him of issuing a misleading report.

Ali Akbar Salehi, head of Iran's Atomic Energy Organisation, said Tehran had asked the IAEA to replace the two inspectors, the ISNA news agency reported. The IAEA has not confirmed whether this will be the case.

Iran has the right to refuse certain inspectors under its agreement with the agency, which has around 200 people trained to conduct inspections in the Islamic state. Iran denied entry to a senior U.N. inspector in 2006.

IAEA BACKLASH?

But if Iran continues to refuse inspectors it could face diplomatic retaliation at the IAEA, whose 35-nation Board of Governors reported Iran to the Security Council in 2006 over its nuclear secrecy and lack of full cooperation with inspectors.

Theodore Karasik, research director at the Institute for Near East and Gulf Military Analysis, said he believed Iran's decision was in retaliation for the latest sanctions.

The United Nations Security Council on June 9 imposed a fourth round of punitive measures on the major oil producer because of nuclear activity the West suspects is aimed at making bombs. Tehran denies the charge.

Iran has branded the sanctions, which among other things target its banking and shipping sectors, "illegal" and lawmakers have warned of scaling back ties with the IAEA.

"It is part of the escalation ladder of tit-for-tat that is now beginning to emerge," Karasik said in Dubai.

The IAEA's report in May said some nuclear equipment had gone missing from a Tehran site where Iran had started researching production of uranium metal, which has both civilian and weapons applications.

Iran denied that the equipment -- an electrochemical cell -- had disappeared from the research laboratory and said inspectors had incorrectly described the work taking place there.

"We gave documents, pictures, everything, which proved this was a mistake," Soltanieh said.

Salehi said Iran last week announced the two IAEA inspectors were banned for an "utterly untruthful" report.

"We asked that they would not ever send these two inspectors to Iran and instead assign two others," he added.

Last month's IAEA report also showed Iran pushing ahead with higher-level uranium enrichment and failing to answer questions about possible military dimensions to its nuclear work.

Enriched uranium can provide fuel for nuclear power plants, or material for bombs if refined much further.

Washington, which was leading the push to impose new U.N. sanctions, at the time said the IAEA report underscored Iran's refusal to comply with international requirements.

Despite the escalating dispute, Brazil's Foreign Minister Celso Amorim said in Vienna he still hoped a plan for Iran to part with some of its nuclear material could serve as the basis for further talks with Tehran.

Western powers have voiced deep misgivings about a plan brokered by Brazil and Turkey in May for Iran to send abroad 1,200 kg of its low-enriched uranium in return for reactor fuel.

"In my opinion I think sanctions make it more difficult, not easier. But I don't think they make it impossible," he said.

(Additional reporting by Hashem Kalantari and Parisa Hafezi in Tehran; additional reporting and writing by Fredrik Dahl in Dubai)