Iran's Supreme Leader Ayatollah Ali Khamenei warned Tehran would end co-operation with the U.N. nuclear watchdog if further demands undermined Iran's national interests, state television said on Monday.

It was the first time Khamenei, who has the last word on all state matters in the Islamic Republic, had aired his views on Iran's deal, struck with three European foreign ministers, to suspend uranium enrichment and sign up to snap nuclear checks.

"If we reach the point that Iran's national interests and values are threatened, we will not hesitate to stop our co-operation," he said. "Anyone who ever tries to challenge Iran's peaceful nuclear program will be slapped in the face."

Iran strongly denies U.S. charges its nuclear program is as a smokescreen for developing atomic weapons.

Washington said on Monday it wanted "decisive action aimed at ensuring full Iranian compliance with its safeguards obligations" when International Atomic Energy Agency (IAEA) chief Mohamed ElBaradei presents his report on Iran this month.

"Threats from Iran to end such cooperation... would be gravely troubling and would further deepen the international community's concerns that Iran continues to have something to hide from the IAEA," State Department spokesman Adam Ereli told reporters in Washington.

But a Western diplomat told Reuters in Vienna it was almost inconceivable that Iran would end co-operation with the IAEA, as a number of hardline Iranian officials have threatened.

"They are not so stupid," said the diplomat.

If Iran were to end its co-operation with the agency, the diplomat said the IAEA board would not hesitate to report this to the U.N. Security Council, which could impose sanctions.

The diplomat said Iran would probably escape being reported to the Security Council at the IAEA's governing board meeting in November, despite repeated failures to inform the agency about its past nuclear activities and facilities.

NO SURRENDER

Khamenei said Iran had not bowed to pressure in striking a deal with the foreign ministers of Britain, France and Germany who wanted proof that Tehran was not seeking nuclear weapons.

"Iran made a correct and wise decision and it does not mean surrender. It neutralized the American and Zionist plot," he said in a speech to senior officials.

Some Iranian hard-liners have criticized the deal to open up Iran's nuclear installations to snap checks, which they view as a concession to foreign pressure.

But Khamenei said Iran's interests had not yet been harmed.

"When I feel that a step has been taken against the interests of the system, I will end co-operation," he said.

Iran last month handed over what it called a "comprehensive and transparent" declaration of its nuclear program to the IAEA. ElBaradei said on Sunday the agency was in the process of verifying the declaration.

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