Representatives for the United States, Russia, Britain, France, Germany, China and the European Union are -- "following up on the recommendations of the foreign ministers to look at the incentive side of the equation," said McCormack, adding that there have been "some good discussions" on the issue.

The spokesman said however that world powers will continue to rely on to punitive measures as well, including United Nations sanctions leveled against Tehran.

"We have just passed the Security Council resolution. So there is a balance here between the two pathways: the incentive and the disincentive pathway," said McCormack.

His remarks came as the five members of the UN Security Council, plus Germany and the European Union held talks in Shangai on Iran's nuclear program, amid calls for strengthened sanctions against Tehran.

Envoys from Britain, China, France, Russia, the United States, Germany and the European Union started their meeting after Tehran announced last week it had started operating hundreds of new centrifuges at its uranium enrichment plant.

The deputy-ministerial-level talks are aimed at seeking a "negotiated solution" to the impasse over Iran's nuclear program and are part of a routine round of meetings set up in 2006 that are hosted by the various countries involved.

Western governments have warned Tehran that it faces further sanctions if it continues to expand its nuclear program, which they believe is a cover for a drive to develop an atomic weapon.

Tehran insists its program is entirely peaceful and aimed at generating energy. But its official IRNA news agency said last week it was now operating 492 new centrifuges at the Natanz uranium enrichment plant, in defiance of UN calls to freeze the process.

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