"Our estimate is that Iran could develop a capability in years, not decades, and I think the next year is going to be critical," Foreign Office Minister Bill Rammell told the British parliament's Foreign Affairs Committee.
He spoke as world powers said after meeting in Germany that they were committed to a diplomatic solution to the dispute over Iran's nuclear program and welcomed U.S. President Barack Obama's offer to talk directly to Tehran.
Western powers suspect Iran's nuclear program is aimed at building an atomic bomb. Tehran says it is for peaceful power generation only.
The head of the United Nations' nuclear watchdog, Mohamed ElBaradei, said this week Iran could gain the capability to make a nuclear weapon in two to five years but there was ample time to deal with the concern.
Rammell said Britain was urging Iran to engage with an offer put on the table last year by the six powers — the United States, China, Russia, France, Britain and Germany — known as the E3+3.
"The new U.S. administration has indicated that this will be a priority for them. They've indicated that they will talk directly to the Iranians but within a context that makes it clear that a nuclear-weaponized Iran is not acceptable," he told a committee hearing on nuclear non-proliferation.
"There is a choice here for Iran. It's either to engage and to get all the benefits that are available through the E3+3 process or to face significant ratcheting up of further sanctions," he said.
He said Britain was trying to get international consensus on sanctions against Iran.
"That is why we've been working at the Security Council, it's why we've been working in the EU (European Union), but we've made clear if necessary we will go further on our own."
"I can assure you there is a very strong message that goes from the government to banks and to British industry about the undesirability of investing in Iran," he said.
The U.N. Security Council has imposed three rounds of sanctions on Iran for refusing to suspend uranium enrichment.
Iran has rejected the six powers' long-standing demand for a suspension of enrichment before talks can begin and has gradually expanded its program during the stalemate, raising fears it may be approaching bomb-making capability.
(Reporting by Adrian Croft)
