Iranian President Mahmoud Ahmadinejad on Monday said his country would not stop enriching uranium, as demanded by the international community, and charged that Israel and the United States were too scared to attack.

He rejected as "illegitimate" the demand by major powers that Iran stop producing enriched uranium, which can be used as fuel for power plants, or if refined much more, provide material for nuclear weapons.

Meanwhile, a British newspaper, quoting intelligence reports received by Western diplomats, reported Monday that Iran has resumed work aimed at producing a nuclear bomb.

The remarks were Ahmadinejad's first comment on the dispute since Iran delivered its response on Friday to a package of incentives offered by world powers seeking to curb its nuclear activities.

"They offer to hold talks but at the same time they threaten us and say we should accept their illegitimate demand to halt [enrichment work]," Ahmadinejad told reporters in Malaysia, where he was attending a summit of eight developing countries.

"They want us to abandon our right [to nuclear technology]," he said.

"Even if some countries like Israel and the United States join forces they will not dare to attack Iran and they know it very well," Ahmadinejad told Malaysian television. "They know that they cannot use the language of force against Iran and must bend in the face of the will of the Iranian people."

The United States, China, Russia, Britain, France and Germany demand that Iran suspend its enrichment work before formal talks can start on their revised package, which includes help to develop a civilian nuclear programme. Iran, the world's fourth-biggest oil exporter, says its nuclear activities are peaceful. The United States and its Western allies suspect they are a cover to build atomic bombs.

The Daily Telegraph reported Monday that Iran had set up a number of civilian companies whose activities, it said, were being deliberately concealed from the United Nations nuclear inspection teams.

"The companies, based on the outskirts of Tehran, are working on constructing components for the advanced P2 gas centrifuge, which can enrich uranium to weapons grade two to three times faster than conventional P1 centrifuges," the report said, adding that the firms were set up by Iran's Revolutionary Guard, which oversees Iran's nuclear program.

Nuclear experts were quoted as saying the centrifuges are highly sophisticated devices mainly used in the manufacture of atomic weapons.

"The work is aimed at developing the blueprint provided by Dr AQ Khan, the 'father' of Pakistan's nuclear bomb, who sold Iran details of how to build atom bombs in the early 1990s," the newspaper said.

The offer of trade and other incentives proposed by the world powers was presented last month by EU foreign policy chief Javier Solana to Iran's chief nuclear negotiator Saeed Jalili. Iran has put forward its own bundle of proposals aimed at resolving the dispute and has said it was encouraged by common points between the two separate packages.

Ahmadinejad said Iran was ready to discuss its nuclear ambitions but that the "language of threat" was futile. "We are ready to discuss common subjects of the two packages. Talks should be held in a fair and just atmosphere," he said.

The nuclear dispute with Iran has raised fears of a military confrontation and helped send world oil prices to record highs. Ahmadinejad dismissed talk of military action.