US senators have warned EU foreign affairs chief Catherine Ashton that Iran's alleged nuclear weapons programme risks igniting a military confrontation.

"Iran's nuclear progamme is moving forward - sharply increasing the risks of either a military confrontation or other countries in the Middle East pursuing their own nuclear arsenals," eight cross-party senators said in a letter sent to the EU's top diplomat on Tuesday (10 January).

They urged Europe to press ahead with sanctions on Iran's most valuable export - oil, with EU foreign ministers set to decide on a possible embargo at a meeting on 23 January.

The senators also want the EU to impose sanctions against the Central Bank of Iran, its main financial intermediary.

"As you know, the Central Bank of Iran has been carrying out illicit and deceptive financial activities that are supporting the Iranian government's advancing nuclear programme," the letter said.

The United States, Canada and the United Kingdom have already taken steps against the bank. With Europe on board, the US hopes to force Tehran into dropping its nuclear programme while encouraging non-Iranian oil exporters to make up the difference.

For its part, Iran says its nuclear progamme is peaceful and will be used to generate electricity for internal consumption, allowing them to export more oil instead of burning it for domestic needs.

It has made a number of threats in the run-up to the EU embargo decision, including a military blockade of the Strait of Hormuz (an export route for Saudi oil) - a potential development which could see world oil prices go up by 50 percent, according to The New York Times.

It recently test-fired various types of missiles, announced the production of its first nuclear fuel rod and warned the US not to send warships to the Persian Gulf.

The EU imports 5.8 percent of its crude from Iran. Greece, Italy and Spain are the biggest buyers, with Greece importing around 35 percent of its consumption from the pariah state.

The US letter comes at a critical moment.

The International Atomic Energy Agency (IAEA) said on Tuesday that Iran has started to enrich uranium at a fortified nuclear site.

"Iran has started the production of uranium enriched up to 20 percent" in the Fordo Fuel Enrichment Plant, IAEA spokesman Gill Tudor told Bloomberg in an email.

Highly enriched uranium is a necessary ingredient to create fission nuclear weapons. Weapons-grade uranium is enriched to 90 percent. The IAEA in November said it has evidence that Iran is aiming to build such a weapon.

In October, Ashton sent a letter to the Iranian leadership asking to restart talks after an almost year-long gap. She is still waiting for a response.

The US letter addressed to Ashton was signed by senators Joseph I. Libermann, Mark Kirk, John Kyl, Marco Rubio, Robert Menedez, Charles E. Schumer, Robert P. Casey, Jr. and Kirsten E. Gillibrand.