IRAN and six world powers have failed for a second time this year to resolve their 12-year dispute over Tehran's nuclear ambitions and gave themselves seven more months to overcome the deadlock that has prevented them from clinching an historic deal.

Western officials said they were aiming to secure an agreement on the substance of a final accord by March but that more time would be needed to reach a consensus on the all-important technical details.

Foreign Secretary Philip Hammond said: "We have had to conclude it is not possible to get to an agreement by the deadline that was set for yesterday and we will extend JPOA to June 30, 2015."

He was referring to the so-called Joint Plan of Action, an interim deal agreed between the six and Iran a year ago in Geneva, under which Tehran halted higher level uranium enrichment in exchange for a limited easing of sanctions, including access to some frozen oil revenues abroad.

Mr Hammond said the expectation was that Iran would continue to refrain from sensitive atomic activity. He added that Iran and the powers "made some significant progress" in the latest round of talks, which began last Tuesday in the Austrian capital.

Mr Hammond said there was a clear target to reach a "headline agreement" of substance within the next three months and talks would resume next month.

During the extension period, Tehran will be able to continue to access around £450 million per month in sanctions relief.

An Iranian official confirmed the extension, as did Russian Foreign Minister Sergei Lavrov, who echoed Mr Hammond's comments about "substantial progress".

There were no details on the "substantial progress", and one senior Western diplomat expressed pessimism about prospects for an agreement in seven months' time.

He said: "It's been 10 years that proposals and ideas have been put forward. There's nothing left. It's essentially a side issue now. The Iranians are not moving. It is a political choice."

The deadline for a deal, agreed in July when the two sides missed an earlier target date, was yesterday.

The Vienna talks have aimed for a deal that could transform the Middle East, open the door to ending economic sanctions on Iran and start to bring a nation of 76 million people in from the cold after decades of hostility with the West.

The cost of failure could be high, and Iran's regional foes Israel and Saudi Arabia are watching nervously. Both fear a weak deal that fails to curtail Tehran's nuclear ambitions, while a collapse of the negotiations would encourage Iran to become a threshold nuclear weapon state, something Israel has said it would never allow.

The main sticking points are the scope of Iran's enrichment programme, the pace of lifting sanctions that have crippled Iran's economy and the duration of any deal.

So far, Western officials said Tehran has refused to budge on its demands to continue to operate most of its enrichment centrifuges. Tehran blames the West for the deadlock, accusing it of making excessive demands.

Several Western officials have questioned the value of extending the talks again, saying there is little reason to expect the Iranians will show the flexibility needed to end the impasse in the weeks and months ahead.