President Mahmoud Ahmadinejad, meanwhile, said the disclosure was a "firm blow" to Western powers opposed to Tehran's atomic work.

"This site will be under the supervision of the IAEA (International Atomic Energy Agency) and will have a maximum of five percent (uranium) enrichment capacity," Iran's atomic energy chief Ali Akbar Salehi said on state television.

The plant, which is "not an industrial scale" unit, will be operational in two years' time, he said.

Dismissing allegations that the plant has a military purpose, Salehi said the facility is being constructed as a "precautionary measure in case of an unwanted incident against our nuclear programme." Analysis

US Secretary of State Hillary Clinton welcomed the decision to grant access to the IAEA.

"It is always welcome when Iran makes a decision to comply with the international rules and regulations, and particularly with respect to the IAEA," she told reporters in New York.

Earlier on Saturday, Salehi said Tehran would allow IAEA inspectors to inspect the plant, 100 kilometres (60 miles) south of Tehran on the road to the Shiite holy city of Qom.

On Friday, the IAEA said Tehran wrote to the agency on September 21 disclosing that it is building a new uranium enrichment facility.

"God willing this new plant will become operational soon and make the enemy blind," Mohammad Mohammadi Golpayegani, supreme leader Ayatollah Ali Khamenei's chief of staff, was quoted by Fars news agency as saying on Saturday.

Iran's hardline president claimed the disclosure as a success for the Islamic republic.

"This issue was turned around in a way that (now) we believe they regret bringing it up," Ahmadinejad told reporters on his return home from the UN General Assembly in New York.

"They may pursue this issue through the media but it has become a firm blow to the arrogance," in reference to the United States and other Western powers, the hardline Iranian president said.

The announcement of the new facility came just days before an October 1 meeting in Geneva between Iran and six world powers to discuss Tehran's disputed atomic programme. Nuclear standoff: chronology

Ahmadinejad denied Tehran was building the plant in secret, as charged by Western leaders, and told reporters in New York on Friday the facility was "completely legal."

"We actually informed the agency (IAEA) 18 months ahead of time. Is this the right thing to do or the wrong thing to do? I thought we are supposed to be encouraged for taking this action."

US President Barack Obama and other Western leaders have threatened Tehran with new sanctions if it does not come clean during the Geneva talks between Iran and Britain, France, Russia, China, Germany and the United States.

The six world powers suspect Tehran is developing atomic weapons under the guise of a civilian nuclear energy programme, a charge Iran vociferously denies.

Uranium enrichment lies at the heart of the nuclear controversy, since the process can be used to make an atomic bomb as well as producing fuel for nuclear reactors. Uranium enrichment explained

Obama said Tehran's new facility was "a serious challenge to the global non-proliferation regime, and continues a disturbing pattern of Iranian evasion."

"But Iran must now cooperate fully with the International Atomic Energy Agency, and take action to demonstrate its peaceful intentions," he said in his weekly audio and video address on Saturday.

Iran's leaders "must now choose -- they can live up to their responsibilities and achieve integration with the community of nations. Or they will face increased pressure and isolation."

On Friday, Obama did not rule out a military option to halt Tehran's galloping nuclear drive, and on Saturday, Iran's arch-foe Israel called for an "unequivocal" response from the West.

"We are not surprised by the recent revelations, because we have been saying that Iran is developing its nuclear activities for military purposes, and the facts prove it now," Israeli Foreign Minister Avigdor Lieberman said.

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