Iran has opened a uranium dioxide factory that will produce fuel for civilian nuclear plants, the head of its atomic energy agency announced Saturday.

Ali Akbar Salehi said the factory in Esfahan, central Iran, which produce uranium dioxide enriched to a level of less than 5 percent was opened in keeping with an agreement between Tehran and world powers.

Its main use would be for the Bushehr nuclear reactor in southern Iran, he said, quoted by state news agency IRNA, .

"Under the agreement with the P5+1 which came into effect in January, we are to transform a part of the enriched uranium to less than five percent oxide," said Salehi.

The deal with the five permanent members of the UN Security Council plus Germany -- known as P5+1 -- calls for a scaling back of Iran's controversial nuclear programme in return for a partial lifting of Western sanctions.

The target date for a final deal has been put back to November 24.

By August 25, Tehran must also respond to the International Atomic Energy Agency (IAEA) on decade-old allegations of past nuclear weapons research.

Tehran denies it wants nuclear weapons, insisting it is pursuing atomic energy purely for peaceful purposes.

While some differences have been reconciled, disagreements remain over how much uranium Iran would be allowed to enrich and on the lifting of international economic sanctions.

A new round of talks between Tehran and the P5+1 is expected before the UN General Assembly starts on September 16.