Israel warned Thursday against a proposal to ease sanctions on Iran in return for the freezing of its nuclear programme, saying it would be "a mistake of historic proportions."

"Israel understands that there are proposals on the table in Geneva today" which would "allow Iran to retain the capabilities to make nuclear weapons," Prime Minister Benjamin Netanyahu said at a Jerusalem conference.

"Israel totally opposes these proposals. I believe that adopting them would be a mistake of historic proportions," he said.

Netanyahu's warning came as the so-called P5+1 group of Britain, China, France, Russia, the United States and Germany was meeting with Iranian officials in Geneva for the latest round of talks over its disputed nuclear programme.

Officials have said a long-awaited deal on curbing Iran's nuclear ambitions may be finally within reach, after years of fruitless talks were given fresh momentum by the election of Iran's new President Hassan Rouhani, seen as a relative moderate.

Western powers suspect Iran's uranium enrichment may be aimed at developing nuclear weapons, a claim Tehran denies.

Israel, widely believed to be the Middle East's sole if undeclared nuclear power, has staunchly opposed easing sanctions.

Ahead of this week's talks, a senior US official said Washington was willing to offer Iran limited sanctions relief if it agrees to take a "first step" to stop advancing its nuclear programme.

Israel's International Relations and Strategic Affairs Minister Yuval Steinitz said that, despite the world understanding Israel's concerns regarding Iran's nuclear programme, the Jewish state still had reason for alarm.

"In recent days, even yesterday, I spoke with some of the European representatives to the negotiations. They understand us perfectly," he said.

"At the same time, we can see here and there a desire to reach a quick achievement, even at the expense of it being a (bad) deal... that would be a historic mistake," Steinitz told military radio.

The six powers have been pushing Iran to freeze its enrichment efforts, reduce stockpiles and lower its capacity to produce nuclear material.

Defence Minister Moshe Yaalon warned that if sanctions were relaxed before they gave up their nuclear programme, "Iran would laugh all the way to the bomb."

"We hope that those who want to prevent the need to use force against Iran will know to maintain tough diplomacy," he said in remarks relayed by his office.

Netanyahu stressed that the crippling economic sanctions must not be eased before Iran's nuclear military abilities were abolished, and reiterated that a unilateral Israeli action remained on the table.

"The sanctions regime has brought the Iranian economy to the edge of the abyss, and the P5+1 can compel Iran to fully dismantle its nuclear weapons programme. This means ending all enrichment, stopping all work on the heavy water plutonium reactor," he said in remarks relayed by his office.

"Anything else will make a peaceful solution less likely. Israel always reserves the right to defend itself, by itself, against any threat," Netanyahu said.

Speaking later in the day with a delegation from the US Congress, the Israeli premier said that "if the news that I am receiving of the impending proposal by the P5+1 is true, this is the deal of the century, for Iran."

"What we're having today is a situation that Iran is giving up, at best, a few days of enrichment time, but the whole international regime's sanctions policy has the air taken out of it," his office quoted him as saying.

"That's a big mistake; it will relieve all the pressure inside Iran. It is a historic mistake, a grievous historic error".

The White House rejected the notion of a possible deal that would be detrimental to Israel's interests, with spokesman Jay Carney stressing there was "no daylight between Israel and the United States... when it comes to the objective of preventing Iran from acquiring a nuclear weapon."

Iranian Foreign Minister Mohammad Javad Zarif said it was possible a deal could be reached "before we close these negotiations" on Friday.

"I hope that by tomorrow morning we can start serious work in order to prepare some kind of joint statement," he told CNN after Thursday's talks.