* Iran agreed with powers not to "advance" heavy-water plant
* Zarif says no new installations, but construction goes on
* Arak is pivotal to ending row over Iran's nuclear drive
Iran will pursue construction at the Arak heavy-water reactor, Foreign Minister Mohammed Javad Zarif was quoted as saying on Wednesday, despite a deal with world powers to shelve a project they fear could yield plutonium for atomic bombs.
France, one of the six powers that negotiated Sunday's landmark initial accord with Iran to curb its disputed nuclear programme, said in response to Zarif's statement that Tehran had to stick to what was agreed in the Geneva talks.
The uncompleted research reactor emerged as one of several big stumbling blocks in the marathon negotiations, in which Iran agreed to restrain its atomic activities for six months in return for limited sanctions relief. The agreement is intended to buy time for talks on a final settlement of the dispute.
Western powers fear Arak could be a source of plutonium - one of two materials, along with highly enriched uranium, that can be used for the core of a nuclear weapon - once it is operational. Iran says it would produce medical isotopes only.
According to the agreed text, Iran said it would not make "any further advances of its activities" on the Arak reactor, under construction near a western Iranian town with that name.
"Capacity at the Arak site is not going to increase. It means no new nuclear fuel will be produced and no new installations will be installed, but construction will continue there," Zarif told parliament in translated comments broadcast on Iran's Press TV.
When asked about this, French Foreign Ministry spokesman Romain Nadal said: "In the interim accord, the Arak reactor is specifically targeted and the end of all work at this reactor. In the agreement and the text, which has been approved by the Iranian authorities, the Arak reactor is clearly targeted."
Israel, widely believed to be the only nuclear-armed state in the Middle East, has denounced the nuclear agreement with Iran as an "historical mistake" as it does not actually dismantle the programme.
"The ink has not even dried on the agreement and already we are hearing provocative announcements from Iran, like this, whose coyness and ambiguity could well augur a breach of the deal," Israeli Strategic Affairs Minister Yuval Steinitz told Reuters when asked about Zarif's statement.
DEAL "SILENT" ON KEY COMPONENTS
However, nuclear expert Mark Hibbs of the Carnegie Endowment think-tank said Zarif's statement seemed to be an attempt to reassure anti-Western hardliners in Iran that the Arak project will survive diplomacy with the powers.
"It doesn't matter whether Iran is doing excavation work or civil construction work around the reactor," Hibbs said.
"What matters for now is that there is no fuel production and testing, that there is no installation at the reactor. Freezing much more than that might be seen by hardliners as total suspension of the project and therefore unacceptable."
Other experts have said that an apparent loophole in the Geneva agreement could allow Iran to build components off-site to install later in the reactor.
"The agreement is silent on the manufacturing of remaining key components of the reactor and its continued heavy-water production," former chief U.N. nuclear inspector Olli Heinonen wrote in an analysis.
"Technically, such efforts are not reasonable if the goal is either to dismantle the reactor or modify it to a more proliferation-resistant, smaller light-water reactor as one of the alternative paths of producing isotopes for medical and industrial purposes," he said.