* Number of advanced centrifuges rising, but not yet operating
* New machines could enable Iran to refine uranium much faster
* Iran says aims to fuel power plants; West suspects military links
Iran is increasing the number of advanced uranium enrichment centrifuges installed at its Natanz underground plant, despite tightening international sanctions aimed at stopping Tehran's nuclear progress, diplomats said on Wednesday.
Iran has for years been trying to develop centrifuges more efficient than the erratic 1970s era IR-1 machines it now uses, but introducing new models has been dogged by technical hurdles and difficulty in obtaining key parts abroad.
If launched and operated successfully, the new machines would enable the Islamic state to sharply speed up sensitive atomic activity which it says is for peaceful energy purposes but which the West fears may be aimed at building nuclear bombs.
"It is clear Iran can build them. The question is how many and how good are they," one Western envoy said.
The planned deployment of next generation centrifuges underlines Iran's refusal to bow to pressure to curb its nuclear programme, and may further complicate efforts to resolve the dispute diplomatically and avoid a spiral into war.
Iran announced early last month that it would build about 3,000 advanced centrifuges. But experts and diplomats said it was unclear whether it had the capability and materials needed to make so many, and also to run them smoothly.
Although still far from the target number, one diplomatic source estimated that roughly 500-600 so-called IR-2m centrifuges and empty centrifuge casings had now been put in place at the Natanz enrichment facility in central Iran.
That compares with 180 two months ago, according to the U.N. nuclear watchdog's latest report on Iran, issued in February. At the same time, Iran had more than 12,000 old-generation centrifuges installed at Natanz, but not all were enriching.
Two other envoys in Vienna, where the U.N.'s International Atomic Energy Agency (IAEA) is based, also said the number of installed IR-2m machines was growing but they did not have details. The next IAEA report on Iran is expected in late May.
The diplomats said the new centrifuges were not yet operating, but the increase in installation was still likely to add to Western alarm over Iran's nuclear advances. Centrifuges spin at supersonic speed to increase the fissile concentration.
How many Iran can make depends upon whether they have all the parts and materials they need, nuclear expert Mark Hibbs of the Carnegie Endowment think-tank said: "It is possible that they have accumulated an inventory of these things."
NUCLEAR TECHNOLOGY BREAKTHROUGH?
Iran says it is enriching uranium to fuel a planned network of nuclear power plants, but the material can also provide the core of a nuclear bomb if processed to a high fissile level and the West wants it to suspend the work.
Talks between Iran and world powers this month failed to yield a diplomatic breakthrough, and the United States and Israel, widely believed to be the only nuclear-armed power in the Middle East, have not ruled out military action to prevent Tehran obtaining nuclear weapons.
If hundreds of new centrifuges had now been installed, "it indicates that Iran has made a significant breakthrough both in mastering the technology and in acquiring the raw materials," said nuclear expert Mark Fitzpatrick of the International Institute for Strategic Studies think-tank.
"This development will be of major concern to countries that are worried about Iran's growing ability to quickly produce nuclear weapons."
Iran had previously been believed to face a shortage of the high strength metals necessary to produce the new centrifuges in large numbers but it might have been able to obtain them on the black market, Fitzpatrick added.
One of the Vienna-based diplomats said the IR-2m machine was designed to reduce sanctions-related problems "in that they replace some hard-to-get materials with what are in theory easier to get or make materials."