While nuclear fuel cycle work is permitted under the Non-Proliferation Treaty (NPT), Iran had been forced to agree to a package of so-called "confidence-building" measures -- suspending enrichment work and allowing tough inspections -- pending the completion of the 15-month-old probe.
The deal on halting centrifuge component building had been struck with the "big three" European Union states in February, in return for help from Britain, France and Germany in normalising the Islamic republic's relations with the IAEA.
For the Iranians, slapped with yet another critical resolution from Vienna earlier this month, it is the Europeans who have reneged on the deal -- even if EU diplomats point out that Tehran had failed to meet the stringent conditions they had set.
With a crucial IAEA meeting looming in September, the tougher Iranian stance -- albeit stopping short of resuming enrichment itself -- has provoked yet more discussions in Europe and the United States on how to handle Iran's programme.
In Washington, minds have already been made up.
"It has been our view, it remains our view (and) Iran's action confirms our view that its nuclear weapons program is a threat to international peace and security and should be referred to the UN Security Council," John Bolton, under secretary of state for arms control and international security, said last week.
"It seems to me perfectly obvious that Iran is not producing components for uranium centrifuges to use them as knickknacks in Iranian living rooms," Bolton said.
Enrichment is a major preoccupation of the IAEA, given that after mastering the fuel cycle Iran would be within grasp of making the leap towards having the bomb -- an inherent weakness in the NPT.
Last week Iran's all-powerful leader Ayatollah Ali Khamenei said it was "essential" for his clerical regime to master such technolgy.
Iran insists it is only interested in generating electricity, but IAEA inspectors have yet to account for traces of highly-enriched uranium found here and have been irked by omissions from past declarations.
In the face of Iran's about-turn, the Europeans also appear to be growing more impatient, even if they are stopping short of fully siding with US calls for sanctions and asserting that "nothing fundamental has changed" for the time being.
"We are in dangerous territory," a European diplomat said, describing Iran's defiant step as "worrying, very worrying".
In Berlin, Paris and London, diplomats are reportedly in "consultations" on the issue.
"We will continue talking to Iran. There is no deadline. We always consider other options. We are deciding at the moment what to do," a Foreign Office spokesperson in London said.
The latest crisis has also added to the already tough balancing act of IAEA chief Mohamed ElBaradei, who is determined to keep the probe focussed on "technical issues".
"I hope that Iran will go back to a comprehensive suspension as they have committed to us before. I would hope that this is not a major reversal," he said.
"I don't think these issues are going to be resolved through confrontation. I think these issues are going to be resolved by steady engagement and robust verification."