By John Irish and Daphne Psaledakis
BRUSSELS (Reuters) - Britain said on Monday there was a "small window" of time to save the Iran nuclear deal, as Tehran signalled it would ramp up its nuclear programme -- seen by the West as a cover for making atomic bombs -- if Europe failed to do more to salvage the pact.
U.S.-Iranian tensions have worsened since U.S. President Donald Trump decided last year to abandon the nuclear deal under which Iran agreed to curtail its atomic programme in return for relief from economic sanctions crippling its economy.
"Iran is still a good year away from developing a nuclear bomb. There is still some closing, but small window to keep the deal alive," Foreign Secretary Jeremy Hunt told reporters on arrival for a foreign ministers' meeting in Brussels.
The Brussels gathering will seek to flesh out how to convince Iran and the United States to reduce tensions and start a dialogue amid fears that the 2015 deal is close to collapse.
In reaction to the re-imposition of tough U.S. sanctions, which have notably targeted Iran's main oil revenue stream, Tehran has cut some of its nuclear commitments under the deal, leading the European parties to the pact, France, Britain and Germany, to warn it about not fully complying with the terms.
Speaking before leaving Brussels, Swedish Foreign Minister Margot Wallstrom suggested the Europeans would still leave the door open for diplomacy, but that Tehran should not taking further measures that could breach the accord.
"It improves their chances of having a good discussion with the EU and other partners in the JCPOA (Iran deal)," she told reporters. "We encourage them to use all diplomatic means and create new diplomatic channels ...to de-escalate the tense situation. We have to use every opportunity to keep the deal."
When asked whether European powers would seek to penalise Iran for breaking parts of its nuclear commitments, Hunt had earlier said there would soon be a meeting of the joint commission, the mechanism set up to handle potential breaches. It could ultimately lead to the reimposition of U.N. sanctions.
The International Atomic Energy Agency last week confirmed Iran is now enriching uranium to 4.5% fissile purity, above the 3.67% limit set by its deal, the second breach of the deal in as many weeks after exceeding low enriched uranium stock limits.
However, that is all still far below the 20% to which Iran refined uranium before the deal, and the roughly 90% needed to yield bomb-grade nuclear fuel. Low-enriched uranium provides fuel for civilian power plants.
Iran denies ever having sought a nuclear weapon.
In Tehran, Iran's nuclear agency said Tehran would return to the situation before the nuclear deal unless European countries fulfilled their obligations.
"GIVE DIPLOMACY A CHANCE"
"These actions are not taken out of stubbornness but to give diplomacy a chance, " agency spokesman Behrouz Kamalvandi said.
"And if the Europeans and America don't want to fulfil their commitments we will create a balance in this deal by reducing commitments and return the situation to four years ago."
Iran says the European countries must do more to guarantee it the economic benefits it was due to receive in return for curbs to its nuclear programme under the deal.
France's Foreign Minister Jean-Yves Le Drian said Europe had to stay united in trying to save the deal, and Tehran should reverse its decision not to comply with parts of it.
France, Germany and Britain have sought to defuse the tensions, which culminated in a plan for U.S. air strikes on Iran last month that Trump called off at the last minute.
But highlighting just how difficult defusing the crisis is, Paris said on Monday a Franco-Iranian researcher had been detained in Iran and the local authorities were not giving consular access or details of her condition.
TRADE MECHANISM
The Europeans are also trying to set up Instex, a barter-based trade conduit with Iran, but an equivalent Iranian mechanism has yet to start. Should the mechanism go ahead it would initially only deal in products such as pharmaceuticals and foods, which are not subject to U.S. sanctions.
Diplomats have that in any case they fear U.S. blowback, while Iran has said Instex must include oil sales or provide substantial credit facilities for it to be beneficial.
"We will do what we can to guarantee that there is no economic embargo against Iran and that European companies can continue working there," Josep Borrell, Spain's Foreign Minister and EU foreign policy chief nominee told reporters.
But the extraterritorial way in which U.S. laws were applied made this difficult, he said, adding Spain would join Instex.
"The deal is on the brink," said a European diplomat.
Click on these links for further details
FACTBOX - Could U.N. sanctions return?
FACTBOX - Responses to Iran enrichment plans
FACTBOX - Curbs imposed by Iran nuclear deal
TIMELINE- Iran's recent clashes with the West
GRAPHIC - Commitments under threat https://graphics.reuters.com/IRAN-NUCLEAR/0100B0660CC/index.html