French Prime Minister Francois Fillon said tensions with Iran are now "extreme", heightening a diplomatic storm caused by Foreign Minister Bernard Kouchner's warning on Sunday that the world should prepare for a possible conflict over Iran's alleged work on a nuclear weapon.

The comments infuriated Iranian leaders who accused France of stoking tensions. International Atomic Energy Agency chief Mohamed ElBaradei called the war talk "hype".

While French leaders said they would prefer a negotiated settlement, they also launched a proposal to establish European sanctions against Iran, outside of those already implemented by the United Nations.

The five permanent members of the UN Security Council plus Germany are to discuss new UN sanctions on Iran, which has rejected demands to stop enriching uranium.

Kouchner met his Dutch counterpart Maxime Verhagen in Paris and said European countries should prepare their own non-UN sanctions.

"These would be European sanctions that each country, individually, must put in place with its own banking, commercial and industrial system. The English and the Germans are interested in talking about this. We will try to find a common European position," Kouchner said.

Britain, France and Germany have led European efforts, with US backing, to try to persuade Iran to end its nuclear efforts in exchange for a package of economic and diplomatic measures.

Verhagen said that if the Security Council did not agree more sanctions, the Dutch government would be willing "to apply European Union sanctions in common with the United States sanctions."

On Sunday, Kouchner warned that "we have to prepare for the worst, and the worst is war." If Tehran possessed an atomic weapon, it would be a "real danger for the whole world," he said in an interview.

Speaking Monday, the French prime minister said: "The Iranians must understand that tension has reached an extreme point... in the relationship between Iran and its neighbours."

France has taken a more aggressive line since President Nicolas Sarkozy came to power in May. Many analysts say Paris is now moving very close to US policy.

Some of France's own European neighbours reacted nervously to Kouchner's strident tones, with Austrian Foreign Minister Ursula Plassnik criticising his "martial rhetoric".

"I am for continued work towards a negotiated solution," she said in Vienna where the French campaign has cast a shadow over the International Atomic Energy Agency (IAEA) conference in Vienna where Iran is top of the agenda.

Italy's Foreign Minister Massimo D'Alema said, "I think new wars are not the solution to the problem and that they could create new tragedies and new dangers."

Iran insists its nuclear work is peaceful and Vice President Reza Aghazadeh, who is also head of Iran's Atomic Energy Organisation (AEOI), warned the West against seeking a confrontation.

Western countries "have always chosen the path of confrontation instead of the path of understanding and cordial relations toward the great nation of Iran," he told the UN meeting in Vienna.

"The great nation of Iran has recorded your discriminatory behavior and performance in its memory and will not forget," Aghazadeh said.

In Tehran, foreign ministry spokesman Mohammad Ali Hosseini said in a statement: "It seems that the French foreign minister has forgotten the policy of the European Union" with his war warning.

"The use of such words creates tensions and is contrary to the cultural history and civilisation of France," he added.

The IAEA director general also said that force should not be used yet to resolve the Iranian nuclear crisis.

"We need always to remember that use of force could only be resorted to when ... every other option has been exhausted. I don't think we are at all there," ElBaradei told reporters on the sidelines of the conference, at which he expressed regret at Iran's refusal to fall in line with UN resolutions.

Without mentioning the French comments, he said "a lot of hype" had been raised about the Iran case.

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France's Kouchner visits Russia after Iran 'war' warning
French Foreign Minister Bernard Kouchner arrived Monday in Russia for talks after causing a storm by asking the world to brace for a possible war with Iran over its nuclear programme.

Kouchner was due to hold talks with his counterpart Sergei Lavrov on Tuesday.

The visit comes a day after Kouchner stepped up the ante against Iran, saying: "We have to prepare for the worst, and the worst is war," in a television interview.

French President Nicolas Sarkozy has himself bluntly warned that Iran risks being bombed if the nuclear crisis is not resolved.

Russia, meanwhile, is building an atomic power plant in the southern Iranian city of Bushehr.

The issue of new UN Security Council resolutions reinforcing sanctions on Iran to force Tehran to stop uranium enrichment will figure in the talks between the two foreign ministers.

Tehran vehemently denies US accusations it is seeking an atomic weapon, saying its nuclear drive is aimed at providing electricity for a growing population whose fossil fuels will one day run out.

The United States meanwhile has never ruled out using military strikes to punish Iran for its defiance and US Defense Secretary Robert Gates said on Sunday that "all options are on the table."

Iran has said it will never initiate any attack but will respond with crushing force if the United States launches a strike on its territory.