UPDATE 1-Iran delays planned start-up of Arak nuclear reactor

* Tehran says Arak is solely a research facility

* But this kind of plant could also yield bomb material (Adds analyst comments)

By Fredrik Dahl

VIENNA, Nov 17 (Reuters) - Iran has postponed until 2014 the planned start-up of a research reactor which Western experts say could potentially offer the Islamic Republic a second route to produce material for a nuclear bomb, a U.N. report showed.

Tehran has continued to install cooling and moderator circuit piping in the heavy water plant near the town of Arak. Nuclear analysts say this type of reactor could yield plutonium for nuclear arms if the spent fuel is reprocessed, something Iran has said it has no intention of doing.

But the country has now delayed the planned timetable for bringing Arak on line by about half a year from the third quarter of 2013, according to the latest U.N. information in a confidential report submitted to member states late on Friday.

"Iran stated that the operation of the IR-40 reactor was now expected to commence in the first quarter of 2014," the U.N. International Atomic Energy Agency (IAEA) report said.

It gave no reason for the postponement, but Western experts have said a launch already next year always seemed unrealistic.

The Arms Control Association, a Washington-based research and advocacy group, said it was questionable whether Iran would be able to meet the new target date as well, in view of "significant delays and impeded access to necessary materials" because of international sanctions imposed on Iran.

The West's worries about Iran are focused largely on underground uranium enrichment plants at Natanz and Fordow, but experts say Arak is also a possible proliferation concern.

Iran rejects Western allegations it seeks to develop a capability to assemble atomic arms, saying its nuclear programme is entirely peaceful and that the Arak reactor will produce isotopes for medical and agricultural use.

But former chief U.N. nuclear inspector Olli Heinonen, now at Harvard University, said Arak was "ill-suited" for isotope production. Plutonium from Arak would be available at the earliest in 2016-17 if a reprocessing plant was built, he said.

Israel, believed to be the Middle East's only nuclear-armed state, sees Iran's nuclear programme as a serious danger and has threatened to attack its atomic sites if diplomacy fails to resolve the decade-old dispute.

If it does, the nuclear sites at Natanz, Fordow and Arak in central Iran are likely to be among the targets.

NO REPROCESSING PLANS

Friday's quarterly IAEA report showed Iran pressing ahead with expanding its uranium enrichment programme at Fordow and Natanz in defiance of tightening Western sanctions.

The report, issued 10 days after U.S. President Barack Obama's re-election raised hope of a revival of diplomacy following months of speculation that Israel might soon attack Iran's nuclear sites, underlined the tough task facing Western powers seeking to pressure Tehran to curb its atomic activities.

"Iran is carefully calibrating development of its nuclear programme to gain leverage at coming talks and avoid probable redlines, while also slowly but steadily increasing the threat facing the West," Cliff Kupchan, Middle East director at the Eurasia consultancy, said.

A U.S.-based think-tank, the Institute for Science and International Security (ISIS), said Iran's total output of low-enriched uranium since 2007 could in theory be used for six or seven nuclear weapons if refined much further.

Enriched uranium can fuel nuclear power plants, Iran's stated aim, but also provide the explosive core of a nuclear weapon if refined much further. Making plutonium from spent fuel is a second way of obtaining potential bomb material.

The IAEA report also said nuclear fuel had been unloaded from Iran's first nuclear energy plant, Bushehr, and transferred to a spent fuel pond. No reason was given for the unexpected move. In theory, such material can yield plutonium, but a Western diplomat played down any such proliferation concern.

In August, German prosecutors said police had arrested four men suspected of delivering valves for the Arak reactor, breaking an embargo on such exports to Iran.

If operated optimally, the heavy-water plant could produce about 9 kilograms (20 pounds) of plutonium a year, or enough for about two nuclear bombs annually, ISIS said in a note on Arak.

"Before it could use any of the plutonium in a nuclear weapon, however, it would first have to separate the plutonium from the irradiated fuel," it added on its website.

Iran has announced it has no plans to reprocess the spent fuel, the London-based International Institute for Strategic Studies (IISS) think-tank said in a report last year.

But Mark Fitzpatrick, director of its non-proliferation and disarmament programme, has said that "similarly sized reactors ostensibly built for research" have been used by India, Israel, North Korea and Pakistan to make plutonium for weapons. (Editing by Mark Heinrich)