VIENNA (Reuters/AFP) - The United Nations nuclear watchdog said on Friday little substantive headway has been made so far in its long-running investigation into suspected bomb research by Iran, a setback to hopes for an end to a stand-off over its atomic activity.

The IAEA also said on Friday that Iran has missed an Aug 25 deadline to answer questions on two areas of activity believed to be related to past efforts to develop nuclear weapons. It said in a report seen by AFP that it and Iran had merely "begun discussions" on these allegations, and that Teheran also failed to propose new areas to discuss by Sept 2 as agreed.

The lack of movement in the inquiry by the International Atomic Energy Agency (IAEA) will disappoint the West and could further complicate efforts by six world powers to negotiate a resolution to a decade-old dispute with Iran over its nuclear ambitions. Obtained by Reuters, the confidential, quarterly IAEA report said Iran had failed to address key questions about the nuclear research - provided to the agency by Western intelligence years ago - by an agreed Aug 25 deadline.

Moreover, the IAEA had also observed via satellite imagery "ongoing construction activity" at Iran's Parchin military base, the report said. Western officials believe Iran once conducted explosive tests there of relevance in developing a nuclear weapon and has sought to "cleanse" it of evidence since then. Iran has long denied UN nuclear inspectors access to the base.

The Islamic Republic had also implemented just three of five nuclear transparency steps under a confidence-building deal it reached with the Vienna-based IAEA, according to the report.

It said Iran, where a moderate president took office a year ago and revived nuclear diplomacy with the West, had also told the IAEA that suspicions about the nature of its programme were "mere allegations and do not merit consideration".

In what big powers are likely to see as a positive note in the report, Iran cut its stockpile of low-enriched uranium - potential bomb fuel - to 7,765 kg in August from 8,475 kg in May. Iran struck an interim deal with the powers last November to scale back some sensitive aspects of its nuclear advances.

Iran denies suspicions that it seeks to develop nuclear weapons capability from its enrichment of uranium. It says the programme is for peaceful energy purposes only.