UPDATE 1-EU states agree in principle to sanction Iran central bank
* EU finalising plans for Iran sanctions
* Central bank likely to be targeted (Adds details)
BRUSSELS Jan 18 (Reuters) - European Union governments have agreed in principle to freeze the assets of Iran's central bank alongside a planned embargo on the OPEC producer's crude oil, but have yet to agree how to protect non-oil trade from sanctions, EU diplomats said on Wednesday.
EU envoys have stepped up talks in recent days to prepare a package of new sanctions against Tehran, with the aim of adopting them at a meeting of EU foreign ministers in Brussels on Monday.
They have already agreed in principle to ban imports of Iranian crude to the EU, though are still discussing details such as the when the embargo will start and how it will be implemented.
"On the central bank, things have been moving in the right direction in the last hours," one EU diplomat said on Wednesday. "There is now a wide agreement on the principle. Discussions continue on the details."
European states are hoping to increase pressure on Tehran over its nuclear programme, which they fear aims to provide Iran with a nuclear bomb. Tehran says its work serves peaceful purposes only.
The oil embargo will be a major step for Europe, and will follow a range of sanctions imposed by the United States at the end of 2011. Washington has also targeted the Iranian central bank in a bid to hurt Tehran's finances. The bank is the main conduit for Iran's oil revenues.
The main concern among some EU member states is to avoid sanctions on the central bank blocking trade in allowed goods, diplomats said. This has lead to heated discussions in recent days in Brussels over how the new restrictions would be worded.
Senior EU envoys will meet on Thursday to discuss the sanctions further and prepare for final approval next week.
Aside from details of the central bank measures, they are scheduled to discuss plans for a review of economic impact of an oil embargo, as well as a grace period after the embargo is imposed during which EU states will be able to fulfill existing oil contracts.
Current plans, which have yet to win the approval of all EU states, envision the grace period ending at the start of July. Some EU states, such as France, have pushed for a short timescale, while others, such as debt-stricken Greece, want more time to adjust to the oil ban. Athens depends heavily on Iranian crude because of Tehran's favourable financing terms.
One EU diplomat said EU states were also working on plans to extend the list of so-called dual-use goods -- products in which trade is prohibited by the European Union because they can be used for military purposes. (Reporting by Justyna Pawlak, Julien Toyer, Ilona Wissenbach and Francesco Guarascio; editing by John O'Donnell and Jon Boyle)