* New centrifuges had already been flagged to IAEA
* Iran says they will not boost higher-grade stockpile
* Announcement coincides with visit of IAEA negotiators
* Iran may be accumulating bargaining chips, expert says (Adds quote from diplomat, paragraphs 6-7)
By Yeganeh Torbati
DUBAI, Feb 13 (Reuters) - Iran said on Wednesday it had started installing a new generation of machines for enriching uranium, an announcement likely to annoy the West and complicate efforts to resolve a decade-old dispute over its nuclear programme.
It came on the day the U.N. nuclear watchdog began talks in Tehran to try to advance a long-stalled investigation into suspected military dimensions of the programme.
Iran had already told the International Atomic Energy Agency (IAEA) that it planned to introduce new IR2-m centrifuges to its main enrichment plant near the central town of Natanz - a step that could significantly speed up its accumulation of material that the West fears could be used to develop a nuclear weapon.
"From last month the installation of the new generation of these machines started," Fereydoun Abbasi-Davani, head of Iran's Atomic Energy Organisation, was quoted as saying by the Iranian Students' News Agency (ISNA).
"We have produced the machines as planned and we are carrying out the installation gradually ... to complete the tests."
One diplomat accredited to the Vienna-based IAEA, which regularly monitors Iranian nuclear sites including the one at Natanz, said he was surprised by the Iranian announcement.
"My understanding until (Abbasi-Davani's statement) was that they hadn't started installation," the envoy said.
Enriched uranium can fuel nuclear power plants, Iran's stated aim, or, if refined to a high degree, provide material for bombs, which the West suspects is Tehran's real purpose - something Iran strenuously denies.
If deployed successfully, new-generation centrifuges could refine uranium several times faster than the model Iran now has.
It was not clear how many of the new centrifuges Iran aimed to install at Natanz, which is designed for tens of thousands; an IAEA note to members implied it could be up to 3,000 or so.
Abbasi-Davani said the new machines were specifically for lower-grade enrichment of uranium to below 5 percent purity.
Iran has been enriching some uranium up to a concentration of 20 percent fissile material, only a short step from weapons grade of 90 percent, and it is this stockpile that has prompted Israel and the United States to warn that they will do whatever is necessary to prevent Iran being able to build a bomb.
The major world powers have imposed sanctions to try to press Tehran to give up nuclear activities with a possible military dimension, while Iran wants them to recognise what it sees as its right to refine uranium for peaceful purposes.
The big powers' next talks with Iran are scheduled for Feb. 26, although few expect any movement from Tehran before its presidential election in June.
The announcement of the new centrifuges "could be perceived as an effort prior to any negotiation by Iran to collect as many as bargaining chips as it can", said nuclear proliferation expert Mark Hibbs at the Carnegie Endowment think tank.
"It doesn't necessarily mean they are shutting the door."
The IAEA has been trying for over a year to secure the access that its inspectors say they need to investigate suspicions of nuclear weapons research.
Its immediate priority is to visit the Parchin military base southeast of Tehran, where it suspects explosives tests relevant to nuclear weapons may have taken place, perhaps a decade ago, an accusation Tehran denies.
Iran is ready to come to a "comprehensive agreement" with the IAEA if its nuclear rights were recognised, and this could include a Parchin visit, the Foreign Ministry said on Tuesday.
But Abbasi-Davani played this down on Wednesday.
"Currently there is no talk about a visit to Parchin or any other site, " he said, according to the Fars agency.
Iran on Tuesday confirmed a Reuters report that it had begun converting small amounts of its 20-percent enriched uranium into reactor fuel, a move that, if expanded, could slow the growth in its stockpile.
But Abbasi-Davani said on Wednesday that the conversion was only taking place to feed the Tehran Research Reactor.
"This is not aimed at limiting the stockpiles of the 20 percent uranium and will not be," he said, according to Fars. (Additional reporting by Zahra Hosseinian in Zurich and Fredrik Dahl in Vienna; Editing by Kevin Liffey)