By Paul Simao

PRETORIA (Reuters) - South Africa said on Thursday a report by the U.N. nuclear watchdog agency showed "increasing confidence" that Iran did not intend to use its nuclear programme for military purposes.

But it added that further oversight by the International Atomic Energy Agency (IAEA) was needed to verify that Iran was not building atomic weapons as feared by the United States, Britain and France.

Tehran insists that its uranium enrichment programme, which can produce fuel for nuclear power plants or atomic weapons, is geared solely to generating electricity and boosting its oil exports.

In a conference call with reporters in Pretoria, South Africa's ambassador to the IAEA said the agency's report last week showed that Iran was cooperating on the matter and did not appear to have militarised its nuclear programme.

"There is increasing confidence in the Iranian (enrichment) programme," Abdul Minty said in a call from Oslo. "They (IAEA) have not found a single item that has been lost or diverted to military operations."

SERIOUS CONCERN

But he conceded that declassified Western intelligence indicating Iran conducted high-explosives tests and design work on a missile warhead as part of a covert nuclear arms programme was a serious concern that needed to be addressed by Tehran.

The IAEA said Iran had not properly responded to the allegation. Iran's government has dismissed the intelligence as false and said it has answered all of the IAEA questions about its nuclear programme.

The United States and its allies are pushing for another round of U.N. sanctions against Iran.

The five permanent U.N. Security Council members -- the United States, Britain, France, Russia and China -- and Germany, have agreed on a draft resolution that would include asset freezes and travel bans on some Iranian officials.

Tehran has ignored three previous council resolutions demanding that it freeze its uranium enrichment programme.

But there are fears within the world body, especially among the Non-Aligned Movement, that the resolution could prompt Iran to stop cooperating altogether with the IAEA and lead to a confrontation.

South Africa, one of the most influential members of the Non-Aligned Movement on the Security Council, favours delaying a vote on a new round of sanctions to allow Iran more time to address the IAEA concerns.

"We do not want a nuclear-weaponised Iran, but we also do not want war over Iran," Minty said.