GENEVA (Reuters) - A major sticking point in nuclear negotiations between Iran and six world powers may have been overcome with compromise language in a draft deal regarding Iran's demand for a "right to enrich" uranium, Western diplomats said on Friday.

Iran has insisted that any pact to curb its sensitive nuclear activity explicitly recognize its right to refine uranium, a process that can produce fuel for civilian power plants or atomic bombs. Western powers say there is no such thing as a right to enrich under international law.

This issue has emerged as one of the most difficult areas of disagreement between Iran and Britain, China, France, Germany, Russia and the United States, diplomats close to the Geneva negotiations said.

Iranian media quoted unnamed Western officials on Friday as saying that Western powers had agreed to acknowledge Tehran's right to enrich. Western diplomats vehemently denied that. They said a compromise had been proposed that does not explicitly recognize a right to produce nuclear fuel by any country.

"If you speak about the right to a peaceful nuclear program that's open to interpretation," a diplomat told Reuters without elaborating.

Earlier this week a senior U.S. administration official told reporters in Geneva that a formula could be found to satisfy all sides.

"Article Four of the NPT, the nuclear Non-Proliferation Treaty, is silent on the issue. It neither confers a right nor denies a right. So we don't believe it is inherently there. Do I believe this issue can be navigated in an agreement? Yes, I do. And we will see if that can be done or not."

Another stubborn dispute in the talks has been Iran's insistence on continuing construction of the Arak heavy-water research reactor, which could yield plutonium if completed.

Western powers want Tehran to scrap the plant as part of an interim deal under which Iran would freeze parts of its nuclear program in exchange for limited relief from international sanctions.

(Editing by Mark Heinrich)