Iran is preparing to install centrifuges for higher-grade uranium enrichment in an underground bunker, diplomatic sources say, a development that is likely to add to Western worries about Tehran's atomic aims.

Preparatory work is under way at the Fordow facility, tucked deep inside a mountain to protect it against any attacks, and machines used to refine uranium could soon be moved to the site near the clerical city of Qom, the sources said.

The Islamic Republic said in June it would shift production of uranium enriched to 20 percent purity to Fordow from its main Natanz plant this year and triple output capacity, in a defiant response to charges that it is trying to make atomic bombs.

Tehran only disclosed the existence of Fordow two years ago after Western intelligence detected it and said it was evidence of covert nuclear activities. The facility has yet to start operating. "They are preparing (for the centrifuges to be installed) in Fordow," one diplomatic source said.

Refined uranium can be used to fuel nuclear power reactors and also, if enriched to much higher levels, provide material for atomic arms.

But its decision in early 2010 to raise the level of enrichment from the 3.5 percent purity needed for normal power plant fuel to 20 percent worried countries that saw it as a significant step towards the 90 percent needed for bombs.