The following correction was printed in the Guardian's Corrections and clarifications column, Thursday February 14 2008

In the article below we gave the impression that an IAEA report - which said that Iran is producing fuel-grade uranium - reported that Iran has enough centrifuges to build a warhead within a year. That inference was not contained in the report. US and British officials, as well as some independent experts, say Iran now has enough centrifuges to make a warhead in a year, but in a briefing to accompany the report, a senior IAEA official said that it would take 18 months and would be possible only if the centrifuges were configured in a different way.

Iran has installed 3,000 centrifuges for enriching uranium - enough to begin industrial-scale production of nuclear fuel and build a warhead within a year, the UN's nuclear watchdog reported last night.

The report by Mohamed ElBaradei, director general of the International Atomic Energy Agency (IAEA), will intensify US and European pressure for tighter sanctions and increase speculation of a potential military conflict.

The installation of 3,000 fully-functioning centrifuges at Iran's enrichment plant at Natanz is a "red line" drawn by the US across which Washington had said it would not let Iran pass. When spinning at full speed they are capable of producing sufficient weapons-grade uranium (enriched to over 90% purity) for a nuclear weapon within a year.

The IAEA says the uranium being produced is only fuel grade (enriched to 4%) but the confirmation that Iran has reached the 3,000 centrifuge benchmark brings closer a moment of truth for the Bush administration, when it will have to choose between taking military action or abandoning its red line, and accepting Iran's technical mastery of uranium enrichment.

US generals are reported to have warned the White House that military action would trigger a devastating Iranian backlash in the Middle East and beyond.

Russian officials yesterday called for patience, insisting Iran could still clinch a deal with the international community in the next few weeks. They pointed to other parts of the IAEA report showing Tehran had been cooperating with the agency's inspectors on other nuclear issues.

"We are most concerned to prevent Iran being cornered so that they walk out of the Non Proliferation Treaty, and break relations with the IAEA," one Russian source said. He said Chinese officials were stepping up diplomatic pressure on Iran, with Moscow, to avert a collision.

"They are on high alert that something has to be done quickly," the source said.

The Iranian president, Mahmoud Ahmadinejad, also seized on positive parts of the IAEA report, noting increased Iranian cooperation with inspectors, as vindication for Tehran. He said: "The world will see that the Iranian nation has been right and the resistance of our nation has been correct."

Last night, a Foreign Office spokesman said: "If Iran wants to restore trust in its programme it must come clean on all outstanding issues without delay."

Gordon Brown has called for increased pressure on Tehran, including an international ban on investment in the Iranian oil and gas industry. But UK officials are nervous about pressure from the US vice president Dick Cheney and other hawks for military action against Iran before a new administration takes office in January 2009. They emphasise that Iranian scientists could be months if not years away from getting the 3,000 centrifuges to function properly, at top speed, for a sustained period, and insist there is no imminent pressure for military intervention.

However, they also point out that Israel's red lines for military action are unclear.

Against the fraught backdrop, a meeting of senior officials from the UN security council's five permanent members and Germany to decide on sanctions, planned for Monday, was put off after the Chinese delegation said it could not attend.

The critical meeting has been pushed back to later this month, giving time for the six-nation group's negotiator, Javier Solana, the EU foreign policy chief, to hold last-ditch talks with Iranian officials.

The ElBaradei report gave a mixed account of Iran's cooperation with inspectors looking into Tehran's nuclear activity in the two decades before it declared its enrichment programme. "Iran has provided sufficient access to individuals and has responded in a timely manner to questions," it said, but added that "cooperation has been reactive rather than proactive".

David Albright, a former UN inspector and now an independent nuclear expert in Washington, said ElBaradei appeared to be trying to put "a happy face" on a worsening situation. "The main issue is that Iran now has 3,000 centrifuges," he said. "The report doesn't even judge the quality of the information being offered, but it's clear it is giving minimal answers."