Iranian President Mahmoud Ahmadinejad on Wednesday warned his US counterpart Barack Obama of a "tooth-breaking" response, as he condemned Washington's new nuclear policy.

Ahmadinejad lashed out after the United States unveiled new limits on use of the nation's nuclear arsenal, but suggested that exceptions could be made for "outliers" such as Iran and North Korea, both accused by the West of flouting UN resolutions concerning their nuclear programmes.

"I hope these published comments are not true... he (Obama) has threatened with nuclear and chemical weapons those nations which do not submit to the greed of the United States," Ahmadinejad said in speech broadcast live on state television.

"Be careful. If you set step in Mr. (George W.) Bush's path, the nations' response would be the same tooth-breaking one as they gave Bush," he said as crowds in the northwestern city of Orumieh cheered "Death to America!"

In a policy shift, Washington said on Tuesday it would only use atomic weapons in "extreme circumstances" and would not attack non-nuclear states -- but singled out Iran and North Korea as exceptions.

After a year of attempting diplomatic initiatives, Obama in recent weeks has ratcheted up pressure for fresh UN sanctions against Iran over its nuclear programme, which Washington suspects is masking a weapons drive.

UN veto-wielding power China, which has emerged as Iran's main economic trading partner in recent years, continues to seek a diplomatic solution to the controversy.

But French Foreign Minister Bernard Kouchner said that Beijing had agreed to participate in talks on Thursday in New York with other world powers concerning sanctions against Tehran.

Kouchner, speaking in Paris on Wednesday, described the Chinese stance as "a positive factor" and "good news" but did not say at what level the talks would be held.

Ahmadinejad said Obama's handling of Washington's nuclear policy showed "his inexperience."

"What Mr. Obama has said even Mr. Bush whose hands were smeared with blood of nations did not," said the hardliner who has refused to budge under Western pressure to abandon Tehran's atomic drive.

"We advise Mr. Obama to be careful in not signing anything they put in front. Wait and weigh things a bit. Beware that those who were bigger and stronger than you could not do a damn thing, let alone you," he said.

Two other top Iranian officials also denounced Washington's nuclear policy.

"We regard the recent position and comments of the United States as propaganda," foreign minister Manouchehr Mottaki told reporters.

Defence Minister Ahmad Vahidi said the new US policy supported Israel.

"They use new designs for new bombs, support Israel which has many nuclear warheads, but on the other hand pressure Iran. This is exactly a domineering order and oppressive dealing which Iran does not accept," he was quoted as saying by the ILNA news agency.

Israel is Middle East's sole but undeclared nuclear power and it has not ruled out a military strike against Iran to stop its atomic programme.

Mottaki meanwhile said Iran was still hopeful that a UN-drafted nuclear fuel deal could be finalised if the United States, France and Russia showed "political will."

The International Atomic Energy Agency brokered a deal in Vienna last October which envisages Iran sending its low-enriched uranium (LEU) to France and Russia for conversion into fuel for a small Tehran research reactor.

But Iranian officials have refused to hand over Tehran's stockpiles of LEU, insisting on a simultaneous swap for higher-enriched uranium inside Iran.

US, Russia, and France who were party to the Vienna talks have opposed this condition.

Following the deadlock over the deal, Washington has been spearheading global efforts to impose new sanctions on Tehran.

Iran is already under three sets of UN sanctions for pursuing the uranium enrichment work, the most controversial part of its atomic drive.