"It is certainly a provocation to increase any enrichment capacity at all," a senior Western diplomat said.
It was not clear how many of the upgraded centrifuges Iran aimed to put in place at Natanz, which is designed for tens of thousands of machines, but the wording of the IAEA's note implied it could be up to roughly 3,000.
Analysts say UN sanctions have limited Iran's access abroad to special steel and other components needed to produce sophisticated enrichment machines in larger numbers. Iran says it is able to manufacture them domestically.
Iran has for years been trying to develop centrifuges more efficient than the erratic 1970s IR-1 model it now uses, but their introduction for full-scale production has been dogged by delays and technical hurdles, experts and diplomats say.
Iran's announcement coincides with wrangling between Tehran and six world powers over when and where to meet next, delaying a resumption of talks aimed at reaching a negotiated deal and avert a new Middle East war.
European Union foreign policy chief Catherine Ashton, who handles contacts with Iran on behalf of the big powers, said in Brussels on Thursday that she was "confident there will be a meeting soon," without elaborating.