UPDATE 2-"Time is of the essence," IAEA tells Iran, pressing for answers

By Francois Murphy

* U.N. atomic watchdog chief urges Iran to step up cooperation

* Uranium traces found at Iran site Netanyahu named -diplomats

* Iran has yet to answer IAEA's questions

* Tehran acting to enrich uranium with advanced centrifuges

* Centrifuge move would be fresh breach of nuclear deal (Adds detail)

By Francois Murphy

VIENNA, Sept 9 (Reuters) - The U.N. nuclear watchdog told Iran on Monday there is no time to waste in answering its questions, which diplomats say include how traces of uranium were found at a site that was not declared to the agency.

It also said Iran was starting to follow through on its pledge last week to further breach its 2015 nuclear deal with world powers, this time installing more advanced centrifuges and moving towards enriching uranium with them, which the deal bans.

Diplomats say Iran has yet to explain to the International Atomic Energy Agency how the uranium particles ended up at what Tehran has said was a carpet-cleaning facility.

Israeli Prime Minister Benjamin Netanyahu, who vehemently opposes Iran's nuclear deal with major powers, first pointed to the site last year, calling it a "secret atomic warehouse" and saying it had housed unspecified radioactive material that had since been removed.

Details of IAEA inspections are confidential and the agency generally does not comment on them. But the IAEA's acting chief made clear that in meetings in Tehran on Sunday he pushed Iran to improve cooperation with the U.N. non-proliferation watchdog.

"Time is of the essence," Cornel Feruta, who took over as IAEA chief in an acting capacity after the death of his boss Yukiya Amano in July, told a news conference during a quarterly IAEA Board of Governors meeting.

"I think that was a message very well understood," he said of his meetings with officials including Iran's foreign minister and its nuclear energy chief.

The IAEA has told member states that Iran has had two months to answer its questions, though it has only given a very general description of the issue because it is confidential, diplomats who attended a briefing by its inspections chief last week said.

At the same time, the Vienna-based IAEA has not yet sounded the alarm because such questions are part of a painstaking process that can often take many months.

"We are very, let's say rigorous, meticulous and we are faithful to our mandate," Feruta said, without going into specifics.


NEW BREACH

The 2015 nuclear deal only lets Iran enrich uranium with just over 5,000 of its first-generation IR-1 centrifuge machines. It can use far fewer more advanced centrifuges for research but without accumulating enriched uranium.

But in response to U.S. sanctions imposed since Washington withdrew from the deal in May last year, Iran has been breaching the limits it imposed on its atomic activities step by step.

Last week the Islamic Republic said it would exceed the deal's limits on research and development, the term applied to Iran's use of technologically advanced centrifuges.

An IAEA spokesman said Iran had informed it that it was making modifications to accommodate cascades - or interconnected clusters - of 164 of the IR-2m and IR-4 centrifuge. Cascades of the same size and type were scrapped under the deal.

IAEA inspectors have verified that smaller numbers of various advanced centrifuges had been or were being installed, the spokesman added.

"All of the installed centrifuges had been prepared for testing with UF6," though none of them were being tested with UF6 on Sept. 7 and 8, he said, referring to the uranium hexafluoride feedstock for centrifuges.

He added that Iran had also informed the agency it would modify lines of research centrifuges so that enriched uranium was produced, which is not allowed under the deal.

In a confidential report to member states, the IAEA also said Iran had made those modifications on some lines. (Reporting by Francois Murphy Editing by Mark Heinrich)