An Iranian plant that produces heavy water officially went into operation on Saturday, despite U.N. demands that Tehran stop the activity because it can be used to develop a nuclear bomb.

President Mahmoud Ahmadinejad inaugurated the plant, which Tehran says is for peaceful purposes.

The announcement comes days before Thursday's U.N. deadline for Iran to stop uranium enrichment — which also can be used to create nuclear weapons — or face economic and political sanctions. Tehran has called the U.N. Security Council resolution "illegal" and said it won't stop enrichment as a precondition to negotiations.

Mohammed Saeedi, the deputy head of the Atomic Energy Organization of Iran, said the heavy water plant is "one of the biggest nuclear projects" in the country, state-run television reported. He said the plant will be used in the pharmaceutical field and in diagnosing cancer.

The plant's top official, Manouchehr Madadi, said the facility has the ability to produce up to 16 tons of heavy water a year.

Iran has been a building a heavy water reactor near the plant for two years, but the reactor is not scheduled for completion until 2009.

Nuclear weapons can be produced using either plutonium or highly enriched uranium as the explosive core. Either substance can be produced in the process of running a reactor.

Reactors fueled by enriched uranium use regular — or "light" — water as a "moderator" in the chain reaction that produces energy. Reactors using "heavy water" contain a heavier hydrogen particle, which allows the reactor to run on natural uranium mined by Iran, foregoing the enrichment progress.

But the spent fuel from a heavy water reactor can be reprocessed to extract plutonium for use in a bomb.

The West's main worry has been uranium enrichment. Iran on Tuesday responded to an incentives package presented by the five permanent members of the U.N. Security Council plus Germany aimed at getting Tehran to roll back its disputed nuclear program.

Iran said it would be open to negotiations but did not agree to the West's key demand for Tehran to halt uranium enrichment as a precondition to talks.