DUBAI (Reuters) - Iran on Sunday will announce an increase in uranium enrichment to 5%, a concentration above the limit set by its 2015 nuclear deal, an Iranian official told Reuters, in a move signaling a deepening challenge to escalating U.S. sanctions pressure.

The declaration comes at a time of sharply increased U.S.-Iranian confrontation, a year after Washington quit the pact and reimposed sanctions that had been lifted under the accord in exchange for Tehran curbing its nuclear work.

“The main announcement tomorrow will be the increase of the level of enrichment to 5% percent from 3.67% that we agreed under the deal,” the official said on Saturday on condition of anonymity.

In a sign of heightening Western concern, French President Emmanuel Macron said he and Iran’s President Hassan Rouhani had agreed to seek conditions for a resumption of dialogue on the Iranian nuclear question by July 15.

Macron’s office added that he would keep on talking with Iranian authorities and other involved parties to “engage in a de-escalation of tensions related to Iranian nuclear issue.”

The deal is aimed at extending the time Iran would need to produce a nuclear bomb, if it chose to, to a year from roughly 2-3 months. Iran says its nuclear program is only for peaceful purposes, such as power generation, and not to make bombs.

Under its deal with six world powers, Iran can enrich uranium to 3.67 percent fissile material, well below the 20 percent it was reaching before the deal and the roughly 90 percent suitable for a nuclear weapon.

Iran’s semi-official Fars news agency reported that senior nuclear negotiator Abbas Araqchi would announce more cuts in its commitments to the pact at a news conference at 10:30 a.m. (0600 GMT) in Tehran.

Sunday’s planned announcement is a setback for Britain, France and Germany, co-signatories of the deal who have pressed for months to persuade Iran to remain committed to the accord.

Iran has said that the Europeans have done “too little, too late” to salvage the pact by protecting Iran’s economic interests from U.S. sanctions.

“ECONOMIC WAR”

Washington tightened those curbs from May, ordering all countries and companies to halt all imports of Iranian oil or be banished from the global financial system. It has also dispatched extra troops to the region to counter what it describes as Iranian threats.

In reaction to the toughened U.S. sanctions, Iran said in May that it would scale back its commitments to the deal after a 60-day deadline to European signatories of the pact to protect Iran’s economic interests from U.S. sanctions.

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However, Iran’s Rouhani said last week that all the measures taken by Iran were “reversible” if other parties to the deal fulfilled their promises.

Leaving room for diplomacy, Rouhani said in a telephone conversation with his Macron: “Lifting all sanctions can be the beginning of a move between Iran and six major powers.”

“The U.S. sanctions are a full-scale economic war against Iran that could create more crisis in the region and in the world,” he told Macron, according to state TV.

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Ali Akbar Velayati, a senior adviser to Supreme Leader Ayatollah Ali Khamenei, said Iranian officials were unanimous in raising the level of uranium enrichment beyond the 3.67% set in accord, in remarks posted on Khamenei’s officials website.

“For example, we need uranium enriched to 5% for use in the Bushehr (power plant) and this is a completely peaceful purpose,” Velayati said, hinting that this might be the first step Iran might take in raising the enrichment level.

Iran’s main demand - in talks with the European parties to the deal and as a precondition to any talks with the United States - is to be allowed to sell its oil at the levels before Washington pulled out of the deal and restored sanctions.

Iranian crude exports were around 300,000 barrels per day or less in late June, industry sources said, a fraction of the more than 2.5 million bpd Iran shipped in April 2018, the month before Trump withdrew from the nuclear deal.