Western leaders do not believe that the plant site has a civilian role.
World leaders demanded access for UN inspectors to a secret Iranian nuclear plant, threatening tough new sanctions should Tehran refuse to come clean.
In a dramatic announcement, US President Barack Obama, French President Nicolas Sarkozy and British Prime Minister Gordon Brown said Tehran admitted to the UN nuclear watchdog that it had built a second uranium enrichment facility.
Russia appeared to harden its support for new sanctions against Tehran, and China said it had taken note of the information and had urged Iran to cooperate with any probe by the International Atomic Energy Agency (IAEA).
The Western leaders made it clear that they did not believe that the site had a civilian role, being what one US official said was "the right size" to produce weapons grade uranium but of no use for nuclear fuel production.
"We expect the IAEA to immediately investigate this disturbing information and to report to the IAEA board of governors," Obama said, branding the new plant a "direct challenge" to international non-proliferation rules.
The revelations sent the confrontation with Tehran to new heights, less than a week before key world powers meet Iranian negotiators in Geneva for talks.
"I think Iran is on notice that, when we meet with them on October 1, they are going to have to come clean and they are going to have to make a choice," Obama said.
But Iran - which insists its nuclear program is purely designed to generate energy and help in medical research - was defiant.
President Mahmoud Ahmadinejad told reporters in New York that Iran had informed the UN's international nuclear watchdog about the plant's existence and "should be encouraged for that. It was perfectly legal."
The head of Tehran's nuclear program, Ali Akbar Salehi, said the mystery second plant had been built to ensure Iran could continue to refine uranium even the the event of foreign air raids on its other sites. Related article
"Considering the threats, our organization decided to do what is necessary to preserve and continue our nuclear activities," he told Iranian television.
"So we decided to build new installations which will guarantee the continuation of our nuclear activities which will never stop at any cost."
Sarkozy threatened rapid sanctions if Iran did not agree to talks on its nuclear program at talks with the international six-nation contact group on October 1.
"It was designed and built over the past several years in direct violation of resolutions from the Security Council and from the IAEA," he said of the plant, during his joint appearance with Obama and Brown at the G20 summit.
"In December, if there is not an in-depth change in Iranian leaders, sanctions will have to be taken," he said.
Brown said the scale of the Iranian "serial deception of many years ... will shock and anger the world.
"The international community has no choice today but to draw a line in the sand," he said, warning that Iranian faces "further more stringent sanctions".
If the threat of sanctions fails to convince Iran to back down, it is not clear what the West's next move would be.
Foreign policy hawks would push for air strikes to destroy Iran's nuclear facilities, but US Defense Secretary Robert Gates said that "the reality is there is no military option that does anything more than buy time."
Gates told CNN that "the estimates are one to three years or so" when asked about the impact of possible military options on Iran's nuclear sites.
Obama said he had not ruled out any option, including military action, but that he preferred to solve the crisis with diplomacy.
Russia's President Dmitry Medvedev hinted again that Moscow might support sanctions against Iran.
Russia, he said, will now go to six-power talks with Iran on October 1 expecting the Islamic regime to provide proof that its program has peaceful intent, and has not ruled out eventually supporting "measures" against it. Facts: Uranium enrichment.
"We need to create comfortable conditions for Iran so that it starts cooperation, to create a system of stimuli: freezing (nuclear enrichment) in return for freezing other sanctions," he said.
"If these stimuli don't work, if cooperation is not developing, then other mechanisms come into play. I've already spoken to them," he said.
China has been told of the second Iranian uranium enrichment plant and has asked Tehran to cooperate with the UN nuclear watchdog in any probe on the issue, Chinese government spokesman Ma Zhao Xu said.
"It is our hope that Iran will cooperate with the IAEA on this matter."
A US official, speaking on condition of anonymity, said the United States had been holding intelligence information on the secret plant for "some time" and believes it houses 3,000 centrifuge machines.
But he added the plant would not be operational for at least a few months.
The IAEA earlier said Iran had sent a letter on September 21 to inform the watchdog "that a new pilot fuel enrichment plant is under construction in the country," agency spokesman Marc Vidricaire said in a statement.
"The IAEA has requested Iran to provide specific information and access to the facility as soon as possible."