Iran's President Mahmoud Ahmadinejad has asked the country's nuclear chief to begin enriching uranium to 20%.
The move comes amid a worsening stand-off over a Western offer for Iran to swap enriched uranium for nuclear fuel.
The West fears Iran is trying to develop nuclear weapons - and have threatened new sanctions. Iran insists its programme is peaceful.
The US defence secretary urged the world to "stand together", saying there was still time for sanctions to work.
"Pressures that are focused on the government of Iran, as opposed to the people of Iran, potentially have greater opportunity to achieve the objective," Robert Gates said during a visit to Italy.
In London, the Foreign Office said Mr Ahmadinejad's announcement was "clearly a matter of serious concern".
"This would be a deliberate breach of five UNSCRs [United Nations Security Council Resolutions]," it said in a statement.