* Iran seeks “middle way” on nuclear fuel proposal-Mottaki

* Mottaki speaks after U.S. warned of more sanctions

* Suggests Kish island as place to hand over uranium

(Adds Kish island proposal, paragraphs 10-13)

By Raissa Kasolowsky

MANAMA, Dec 12 (Reuters) - Iran needs up to 15 nuclear plants to generate electricity, its foreign minister said on Saturday, underlining Tehran’s determination to press ahead with a programme the West suspects is aimed at making bombs.

Manouchehr Mottaki, addressing a security conference in Bahrain, also cast further doubt on a U.N.-drafted nuclear fuel deal meant to allay international concern about the Islamic Republic’s atomic ambitions.

“First I think we could just totally abandon the whole thing or we could propose something more moderate, a kind of middle way ... Iran has done that,” he said.

Iran has sought amendments to the proposed deal, under which it would transfer stocks of low-enriched uranium (LEU) abroad and receive fuel in return for a medical research reactor. Tehran says it could produce the fuel itself if it is not able to obtain it from abroad.

The proposal to farm out most of Iran’s LEU reserves is aimed at minimising the risk of the country refining the material to the 80-90 percent grade suitable for a weapon.

Iran, the world’s fifth-largest crude exporter, says its nuclear programme is aimed at generating electricity so that it can export more of its gas and oil.

“We need 10 to 15 nuclear plants to generate electricity in our country,” Mottaki said. Iran has one nuclear power plant, under construction by Russia.

On Friday, U.S. Defense Secretary Robert Gates said he expected the international community to impose significant additional sanctions on Iran over its nuclear programme.

Iranian officials have repeatedly shrugged off the impact of such punitive measures. “It would be better not to experience that again,” Mottaki said, referring to possible new sanctions.

He also appeared to say that Iran had told the International Atomic Energy Agency (IAEA) that Kish island, a free zone near the Straits of Hormuz, could be a point for handing over uranium to foreign parties for enrichment -- a proposal sure to meet with rejection from world powers.

“We presented the proposed mechanism from the Islamic Republic of Iran, about 1,000 to 1,200 kilos of (enriched) uranium of 3.5 percent grade that should be exchanged with the fuel we need in our reactor in Tehran,” he said, in comments translated into English at the conference.

“In the first phase we can give you 400 kilos enriched uranium of 3.5 percent, which will be prepared by Iran and you give the equivalent ... of 20 percent uranium, and it should be exchanged simultaneously,” he added.

Iran informally suggested Kish some time ago to the IAEA but Western countries object to such simultaneous transactions of small amounts of uranium on Iranian soil since that would not significantly cut down Iran’s LEU stockpile.

TURKISH, SAUDI INVOLVEMENT?

Earlier this month, the head of Iran’s Atomic Energy Organisation, Ali Akbar Salehi, said Iran needed 20 uranium enrichment plants to provide fuel for its nuclear power plants.

That announcement came less than a week after Tehran said it would build 10 more sites like its Natanz underground facility, a statement that further heightened tension with major powers involved in efforts to reach a diplomatic solution to the row.

The 35-nation board of the IAEA last month voted to rebuke Iran for building a second enrichment plant in secret, near the holy city of Qom.

Refined uranium can be used to fuel nuclear power plants or, if enriched much further, provide material for bombs.

Separately on Saturday, an Iranian news agency said four inspectors from the U.N. nuclear agency watchdog had arrived to inspect the newly-disclosed enrichment site near Qom.

It would be the fourth such visit to the site, ILNA news agency added, describing it as a regular inspection. It said such inspections should take place once a month, under an agreement between Iran and the Vienna-based agency.

Asked in Manama if Saudi Arabia or Turkey should join talks between Iran and the six major powers -- the United States, Britain, France, Germany, China and Russia -- Mottaki said: “There is no limit to the members of 5+1 (six powers). We believe other countries from the region could participate in the talks.” (Additional reporting by Frederik Richter in Manama and Ramin Mostafavi in Tehran; writing by Fredrik Dahl and Andrew Hammond; editing by Janet Lawrence)