Iran is capable of enriching uranium to 90 per cent, the level required to build nuclear weapons, President Hassan Rouhani said on Thursday.
Despite threatening that Iran could enrich uranium to weapons-grade levels "today, if we wanted to", Mr Rouhani insisted the country's nuclear programme will not pursue those ends.
"Our nuclear programme is peaceful and we are not looking for a bomb," he said.
America is the one with a history of using atomic bombs, he said, referring to US actions in Japan in 1945.
The threat is the latest escalation in Iran's nuclear ambitions after an attack on its Natanz nuclear plant.
Iran blamed Israel for the attack that hit an electrical grid and caused a blackout at the plant, resulting in damage to centrifuges.
Iran vowed to replace the damaged first-generation centrifuges with more advanced sixth-generation models, a breach of the 2015 nuclear agreement
On Tuesday, Iran admitted it had started enriching uranium to a purity level of 60 per cent in response to the attack on the key nuclear facility. The country's chief negotiator, Abbas Araghchi, confirmed the escalation ahead of negotiations in Vienna over the 2015 nuclear deal.
Arab League Secretary General Ahmed Aboul Gheit said on Wednesday that Iran's plan to enrich uranium to 60 per cent was a clear step towards developing nuclear weapons and an extension of Tehran's destabilising actions in the Middle East.
Negotiations are taking place in Vienna between signatories to the nuclear deal, in an attempt to get the US back into the pact from which it withdrew in 2018.
Iran says it will not co-operate with the terms of the 2015 deal until sanctions against the regime are lifted.
The deal capped the level of purity to which Iran can enrich uranium, the feedstock for centrifuges, at 3.67 per cent, far below the 90 per cent needed for bomb-grade material.
Mr Rouhani said Iran would return to 3.67 per cent uranium enrichment if a deal was reached.
But Iran's supreme leader on Wednesday dismissed initial offers at the talks in Vienna to save Tehran's tattered nuclear deal as "not worth looking at".