Iran has halted its most sensitive nuclear activity under a ground-breaking deal with world powers, a confidential UN atomic agency report reviewed by Reuters on Monday showed, paving the way for the easing of some Western sanctions.

Western states were expected to ease sanctions later on Monday after the IAEA confirmed Iran is meeting its end of the bargain under a November 24 interim accord to resolve a decade-old dispute over its nuclear program.

EU foreign ministers, meeting in Brussels, were due to take a decision on EU measures later in the day.

The mutual concessions are scheduled to last six months, during which time six powers - the US, Russia, China, France, Britain and Germany - aim to negotiate a final accord defining the permissible scope of Iran's nuclear activity.

Western governments want such an agreement to lay to rest their concerns that Iran could produce an atomic weapon and ease the risk of a new war in the Middle East. Tehran is seeking an end to painful US and EU sanctions that have severely damaged its economy.

The EU's foreign policy chief Catherine Ashton, who coordinates diplomatic contacts with Iran, said she expected talks on the final settlement to start within the next few weeks.

Under the interim deal, Iran agreed to suspend enrichment of uranium to a fissile concentration of 20 percent, a short technical step away from the level needed for nuclear weapons.

It also has to dilute or convert its stockpile of this higher-grade uranium, and cease work on the Arak heavy water reactor, which could provide plutonium, an alternative to uranium for bombs.

The IAEA said Tehran had begun the dilution process and that enrichment of uranium to 20 percent had been stopped at the two facilities where such work is done.

In return, Tehran is expecting to be able to retrieve $4.2 billion in oil revenues frozen overseas and resume trade in petrochemicals, gold and other precious metals.

The US estimates the value of sanctions relief in total at about $7 billion, although some diplomats say much will depend on the extent to which Western companies will now seek to re-enter the Iranian market.