"The president (Mahmoud Ahmadinejad) will give a speech announcing that the heavy-water project has become operational," an official said.

Iran is building a heavy-water nuclear reactor at Arak, 120 miles (190 km) southwest of Tehran. Its plutonium by-product can be used to make atomic warheads.

Western nations accuse Iran of seeking to master technology to produce nuclear weapons. Iran, the world's fourth largest oil exporter, insists its aim is only for peaceful electricity.

A senior Iranian nuclear official earlier this week said Iran would start up the heavy-water production part of the project but not the reactor. He had said this part of the project was not a proliferation risk.

A Western diplomat had agreed that heavy-water production could not be diverted to military uses but said such a step would not be helpful amid Iran's nuclear standoff with the West.