The White House said tonight that Iran has made a "serious miscalculation" by clearing the way to resume uranium enrichment and that intensive diplomacy was under way with European allies and others about what to do now.
White House spokesman Scott McClellan, traveling with President George W. Bush on a brief trip to Kentucky, told reporters that if the European-led negotiations had run their course, then there was no other option but to refer Iran to the UN Security Council for possible sanctions.
Earlier Britain called for the UN Security Council to consider action against Iran but former Iranian President Akbar Hashemi Rafsanjani said any sanctions would be futile.
British Prime Minister Tony Blair vowed to haul Iran before the Security Council, which can impose punitive measures.
"I think the first thing to do is to secure agreement for a reference to the Security Council, (if) that is indeed what the allies jointly decide as I think seems likely," Mr Blair told parliament.
"Then .. we have to decide what measures to take and we obviously don't rule out any measures at all," he added.
In Washington, State Department spokesman Sean McCormack said it was now "more likely than ever" that Iran would be hauled before the Security Council.
Iran removed UN seals at uranium enrichment research facilities on Tuesday and announced it would resume "research and development" on producing uranium fuel, prompting angry reactions from Washington, the European Union and Russia.
"I think that the Iranian regime has made another serious miscalculation by their latest actions, and we are engaged in some intensive diplomacy right now. We are talking with our European friends and others about how to move ahead and those discussions continue," Mr McClellan said.
He said the international community had given Iran a chance to negotiate in good faith, but instead Tehran "is showing yet again that they are going to ignore the demands of the international community, and I think that's a serious miscalculation."
"We believe that if the negotiations have run their course and Iran is not going to negotiate in good faith, then there's no other option but to refer the matter to the Security Council," Mr McClellan said.
Iran says its nuclear programme is entirely peaceful and the UN nuclear watchdog has found no firm proof to the contrary.
"Adopting harsh measures like imposing sanctions cannot bring about the desired outcome," Rafsanjani said at Tehran University in a sermon to mark the Muslim Eid al-Adha festival.
The foreign ministers of Germany, France and Britain will meet in Berlin on Thursday to discuss the crisis caused by Iran's move to reactivate a nuclear fuel programme mothballed under a November 2004 deal with the EU trio.
European diplomats say they expect an emergency meeting of the International Atomic Energy Agency's board of governors to take place, probably towards the end of the month.
EU diplomats say there is a clear simple majority on the IAEA's 35-nation board in favour of referring Iran to the Security Council. However, they said EU and U.S. officials would work to achieve as much consensus as possible.
Russia and China, which have major energy interests in Iran, have previously opposed moving the dispute to the Security Council, where they both wield veto powers.
However, Iran's latest action appears to have disconcerted Moscow. Russian Foreign Minister Sergei Lavrov discussed the row with U.S. Secretary of State Condoleezza Rice by telephone.
"Both sides...expressed deep disappointment about Tehran's decision to abandon the moratorium," a Russian foreign ministry statement said.
Iran's action rattled oil markets yesterday, helping push up the price of crude for a while.
Rafsanjani said diplomacy, not confrontation, remained the best way to solve the dispute.
"We will stand by our right to nuclear technology. They will regret creating any problems for us," he told worshippers.
Any embargo on Iranian oil exports would be a double-edged sword -- Iran is the world's fourth biggest crude oil exporter.
The United States already has a full embargo against Iran, but the EU could impose trade restrictions.
Neither the EU nor Washington is actively calling for sanctions against Iran, but any referral of the Islamic republic to the Security Council would bring that possibility closer.
The Council could impose sanctions ranging from travel curbs on government officials to a full trade embargo such as those previously imposed on Libya and Iraq.