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."
Also on Monday, U.S. lawmakers seeking to tighten Washington's own sanctions, announced a draft law that would effectively deprive foreign banks that do business with banned Iranian institutions of access to the U.S. financial system.
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 Amano 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.
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 U.N. Security Council in 2006 over its nuclear secrecy and lack of full cooperation.
"It is worrisome that Iran has taken this step, which is symptomatic of its longstanding practice of intimidating inspectors," U.S. State Department spokesman P.J. Crowley said. "This will not ... encourage the international community to believe that Iran's programme is peaceful in nature."
Theodore Karasik of the Institute for Near East and Gulf Military Analysis said he believed Iran's expulsion of the inspectors was in retaliation for sanctions.
The United Nations Security Council on June 9 imposed a fourth round of punitive measures on Iran because of nuclear activity the West suspects is aimed at developing the means to make bombs. Tehran says its nuclear programme is peaceful.
Iran has branded the U.N. sanctions, which among other things target its banking and shipping sectors, "illegal."
Besides the U.N. sanctions, the United States and Europe are working on tightening measures of their own.
Senator Chris Dodd and Representative Howard Berman issued a joint statement announcing a proposal for a bill which they hope will be passed by early next month banning foreign banks that work with banned Iranian organisations.
"The act presents foreign banks doing business with blacklisted Iranian entities a stark choice -- cease your activities or be denied critical access to America's financial system," according to a summary of the proposed legislation.
IRAN CRITICISES IAEA REPORT
The IAEA's report in May said some nuclear equipment had gone missing from a Tehran site where Iran had started research on production of uranium metal, which has civilian and weapons uses. Iran denied equipment had disappeared from the laboratory and said inspectors had wrongly described the work there.
"We gave documents, pictures, everything, which proved this was a mistake," Soltanieh said. He said Iran had banned the two IAEA inspectors 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 activity.
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," Amorim said.
(Additional reporting by Hashem Kalantari and Parisa Hafezi in Tehran, Arshad Mohammed in Washington; additional reporting and writing by Fredrik Dahl in Dubai; Editing by Peter Graff)
