Iran said its scientists have produced the nation's first nuclear fuel rod, a feat of engineering the West doubted Tehran was capable of.
Sunday's announcement comes after Iran has said it was compelled to manufacture fuel rods on its own since international sanctions banned Tehran from buying them on foreign markets.
Nuclear fuel rods contain pellets of enriched uranium that provide fuel for nuclear power plants.
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Iran's atomic energy agency's website said the first domestically made rod has already been inserted into the core of Tehran's research nuclear reactor. The Islamic Republic News Agency said this was the first time the reactor was used to test nuclear fuel.
The small research reactor in Tehran was built in 1967 with US assistance. It was shut down following the Islamic Revolution of 1979 and later reopened. According to the Iranians, the tests conducted there are aimed at producing medicines for terminal diseases such as cancer.
It's unclear if the rod contained pellets or was inserted empty, as part of a test.
The West fears Iran's uranium enrichment program is geared toward making atomic weapons - a charge Tehran denies.
Also on Sunday, Iran dismissed Washington's move to impose new sanctions on financial institutions dealing with the Islamic state's central bank over the country's disputed nuclear program, the Students news agency reported.
President Barack Obama signed the bill, approved by Congress last week, which aims to reduce Tehran's oil revenues but gives the US president powers to waive penalties as required.
The head of Iran's Chamber of Commerce, Mohammad Nahavandian, rejected the move as "unjustifiable", saying such sanctions would have reciprocal consequences.
"The Iranian nation and those involved in trade and economic activities will find other alternatives," said Nahavandian.
Human chain around Isfahan reactor (Archive photo: EPA)
Washington and the European Union have already pushed four rounds of sanctions through the United Nations over Iran's nuclear program and imposed unilateral measures that have deterred Western investment in Iran's oil sector, making it harder to move money in and out of the country.
Imposing sanctions on the central bank would tighten that screw and make it more difficult for Iran to receive payments for exports -- particularly oil, a vital source of hard currency for the world's fifth-biggest crude exporter.
Iranian officials insist that foreign sanctions have had no impact on the country's economy.
"The sanctions have raised the cost of trade and economic transactions but it has not managed to change Iran's political behavior," Nahavandian said.
So far, Iran's leaders have shown no sign of changing the country's nuclear course despite mounting international pressure to force it to stop.
US financial institutions are already generally prohibited from doing business with any bank in Iran, including the central bank, so the new measure by Washington would have to be carried out with international agreement.
Nahavandian said European countries should not miss the investment opportunity in an emerging market like Iran.
"Considering the economic crisis in Europe, the European companies are after finding new markets ... political disputes should not have an impact on trade relations," he said.
Senior US officials said Washington was engaging with its foreign partners to ensure the sanctions can work without harming global energy markets and stressed the US strategy for engaging with Iran was unchanged by the bill.
Washington and its allies say Iran is trying to build nuclear bombs under the cover of a civilian program. Tehran denies that, saying it needs nuclear technology to generate power.
Meanwhile, Iran's navy said it has test-fired a medium-range surface-to-air missile during a drill in international waters near the strategic Strait of Hormuz — the passageway for one-sixth of the world's oil supply.
State TV said the missile is designed to evade radars and was developed by Iranian scientists.
A spokesman for the exercise, Rear Adm. Mahmoud Mousavi, said torpedoes will be used in the drill on Sunday.
AP, Reuters contributed to the report