Iran's supreme leader has denied it is developing nuclear weapons, after a new report from the UN atomic watchdog, the IAEA, sparked an international outcry.

Ayatollah Ali Khamenei said any fears were "baseless" as Iranians' beliefs "bar us from using such weapons".

The blunt report raised concerns Iran was working on nuclear weapons.

Russia said it was "very alarmed" over the report while the US warned Iran it faced consequences if it failed to meet international responsibilities.

According to the unusually forthright report by the International Atomic Energy Agency (IAEA), Iran's level of co-operation with the agency was decreasing, adding to concerns about "possible military dimensions" to its nuclear programme.

Britain and Germany both said the report reinforced their "great concerns" about Iran's enrichment of uranium and other nuclear activities.

Enriched uranium can be used to fuel nuclear power plants. Very highly enriched uranium can be made into atomic bombs.

"This most recent report notes that as well as ignoring the requests for information about possible military dimension of their programme, Iran built a secret enrichment plant in Qom, and Iran enriched uranium up to 20% despite the [IAEA] telling them not to do so," said a statement from Britain's Foreign Office.

Russian Foreign Minister Sergei Lavrov said in a radio interview: "We are very alarmed and we cannot accept this, that Iran is refusing to co-operate with the IAEA."

But Ayatollah Khamenei countered: "The West's accusations are baseless because our religious beliefs bar us from using such weapons.

"We do not believe in atomic weapons and are not seeking that," he was quoted as saying by Iranian media.

Iran has always maintained that its nuclear programme is peaceful.

The US and other Western nations fear it is enriching uranium for nuclear weapons.

Another matter of concern from the UN report is that Iran has moved its stockpile of enriched uranium from below ground to a site above ground, says the BBC's Tehran correspondent, Jon Leyne, who is in London.

This has led to a rise to speculation that some factions in Tehran would almost welcome a military strike, in order to help them to stay in power, he says.

Meanwhile, Iran launched its first domestically built destroyer, reportedly equipped with sophisticated radar, anti-ship and surface-to-air missiles as well as torpedoes and naval guns.

Reports said the new 1,500-tonne guided missile destroyer, Jamaran, would be deployed in the Gulf.

Germany said Iran's failure to comply with UN wishes over its nuclear programme was forcing the international community to pursue further sanctions against Tehran.

Germany is one of six nations negotiating with Iran over its nuclear programme, along with the five permanent members of the UN Security Council - Russia, the US, France, Britain and China. US officials said that while the report showed Iran had technical difficulties, its IAEA co-operation was declining.

Senior administration officials in Washington said Iran's pattern of behaviour was "disturbing".

One official said Iran's statements that its nuclear programme was peaceful were becoming less credible, adding that it was becoming clear this was a country seeking nuclear weapons.

The US is keen for the UN Security Council to impose a fourth round of sanctions on Iran.

"We always said that if Iran failed to live up to those international obligations, that there would be consequences," White House spokesman Robert Gibbs said.

In response to the report, Tehran said it "confirmed Iran's peaceful nuclear activities and the country's non-deviation towards military purposes," according to the state news agency, Irna.

The IAEA report will be discussed by the agency's 35-country board at a meeting between 1-5 March.

This is the first IAEA report on Iran compiled under its new director general, Yukiya Amano.

The report says its information was "consistent and credible in terms of the technical detail, the timeframe in which the activities were conducted and the people and organisations involved".

It says: "Altogether this raises concerns about the possible existence in Iran of past or current undisclosed activities related to the development of a nuclear payload for a missile."

The report also urges Iran co-operates with IAEA investigators "without further delay" as its resistance added to concerns "about possible military dimensions to Iran's nuclear programme".

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