Satellite images show that Iran's Arak heavy-water plan is operational, raising fears that it is trying to produce plutonium for a nuclear bomb, Britain's Daily Telegraph claimed on Tuesday.

The newspaper published images on its website which appear to show steam rising from forced air coolers, suggesting heavy-water production at the plant, which has been closed to international inspectors for 18 months.

Heavy water is required in plutonium-producing reactors and that raises alarms that Tehran is seeking a second path to obtain the bomb.

Stuart Ray of consultancy firm McKenzie Intelligence Services told the paper that the images, commissioned from commercial satellite operators, suggested that the heavily-guarded facility was "operational."

World powers and Iran on Tuesday exchanged offers at talks in Kazakhstan aimed at breaking a decade of deadlock over Tehran's disputed nuclear drive.

International efforts have so far been concentrated on the Islamic Republic's attempts to enrich uranium, but the Telegraph insists that the new evidence shows it is developing a "Plan B".

According to the paper, western governments have known about activity at Arak for some time.

Plutonium is produced as part of the mix in spent nuclear fuel, along with unused uranium.

To make plutonium usable, a reprocessing plant is needed to separate it from the other materials in spent fuel. It can then be embedded into the core of a nuclear weapon.

North Korea has recently developed such technology and experts fear Iran may follow suit, triggering responses from its foes.

"Some think Israel's red line for military action is before Arak comes online," said Mark Fitzpatrick, a former U.S. State Department official at the International Institute for Strategic Studies.

"The option of a military strike on an operating reactor would present enormous complications because of the radiation that would be spread," he explained in comments published by the Telegraph.

International Atomic Energy Agency inspectors have been barred from the site since August 2011 and Iran has rebuffed appeals for information about the facility.

Tehran denies it is developing nuclear weapons and wants the world to respect what it says is its right to enrich uranium -- something current UN sanctions say it cannot do because of its refusal to cooperate with nuclear inspectors.

Iran already has a nuclear power plant in the southern city of Bushehr -- built with Russian help -- but Iran's supreme leader Ayatollah Ali Khamenei has described atomic weapons as a sin. (AFP)