Iranian President Mahmoud Ahmadinejad announced his nation has enriched uranium for the first time, a landmark in its quest to develop nuclear fuel.
Russia called on Iran to immediately halt all enrichment work, and also described the move as a "step in the wrong direction", however Tehran rejected this, saying its program can't be stopped.
"Iran's nuclear activities are like a waterfall which has begun to flow. It cannot be stopped," a senior Iranian official told Reuters on condition of anonymity.
Iran must "suspend all work on uranium enrichment, including for research," the official ITAR-TASS news agency quoted foreign ministry spokesman Mikhail
Kamynin as saying.
Iran's announcement that it had enriched uranium on its own comes as a major
diplomatic embarrassment to Russia, which even hours before the announcement
was made renewed its offer to enrich uranium on Russian soil on Iran's behalf
as a means of defusing the growing crisis.
White House spokesman Scott McClellan said Iran's move would only result in further isolation, and the US will consult with its allies on what the next move should be.
"Once again they have chosen the pathway of defiance as opposed to the pathway of cooperation. And we would call upon the Iranian regime to reconsider the steps that it has taken," US State Department spokesman Sean McCormack told reporters in Washington.
But he also appeared to play down the significance of the announcement.
"One of the critical pathways to development of a nuclear weapon is the ability to enrich uranium to high levels. That is not the announcement that the Iranians made today," he said.
"It's a fairly low enrichment level."
Mohamed ElBaradei, the head of the UN’s nuclear watchdog the International Atomic Energy Agency (IAEA), is due in Iran this week for talks to try to resolve the standoff.
The UN Security Council has demanded that Iran stop all uranium enrichment activity by April 28.
But Iran has rejected the demand, insisting it has a right to develop the process.
’Historic moment’: Ahmadinejad
In a nationally televised address to the nation, the hardline leader called on the West not to force Iran to abandon uranium enrichment.
President Ahmadinejad made the announcement in front of an audience that included top military commanders and clerics in the north-western holy city of Mashhad.
"I formally declare that Iran has joined the club of nuclear countries," he told the crowd which then broke into cheers of "Allahu akbar," or "God is great".
Speaking from a richly adorned hall in one of Iran's holiest cities, Mr Ahmadinejad again stated that his country does not aim to develop nuclear weapons.
He said Iran "relies on the sublime beliefs that lie within the Iranian and Islamic culture. Our nation does not get its strength from nuclear arsenals."
He went on to say that Iran wants to operate its nuclear program under IAEA supervision, and said the country would abide by its rights and regulations under the regulations of the Nuclear Non-Proliferation Treaty.
But he did warn the US and some European nations that they should "not to cause an everlasting hatred in the hearts of Iranians" by trying to force Iran to give up its uranium enrichment.
Nuclear fears
According to officials, Iran succeeded in enriching uranium to a level needed for fuel on a research scale only.
It does not mean Iran is immediately capable of producing enough fuel to run a reactor or develop the material needed for a nuclear warhead.
Nonetheless, the announcement has revealed how difficult it will be for the West to convince Iran to give up enrichment.
Iran's nuclear chief Vice President Gholamreza Aghazadeh said Iran plans to expand its enrichment program to be able to create nuclear fuel to generate electricity.
But the US and some in Europe accuse Iran of seeking to develop nuclear weapons, an accusation Tehran denies.
The IAEA is due to report to the UN Security Council on April 28 whether Iran has met its demand for a full halt to uranium enrichment. If Tehran has not complied, the council will consider the next step.
The US and Europe are pressing for sanctions against Iran, a step Russia and China have so far opposed.