Iranian media said Russia's top atomic energy official Alexander Rumyantsev and his Iranian counterpart Gholamreza Aghazadeh inked the deal during a tour of the Russian-built power plant at Bushehr in southern Iran.
Washington is convinced that Iran is seeking to build atomic weapons - charges that Tehran denies - and has been trying to convince Moscow to halt its nuclear co-operation.
The condition that spent fuel be returned was built into the deal as a concession to Western concerns. Tehran initially rejected the condition, but eventually relented after two years of negotiations.
The dispute over spent fuel had pushed the plant's opening back to January 2006. The deal faced a further snag Saturday when Iran objected to a Russian proposal to further delay firing up the plant's reactor.
Russia's ITAR-TASS news agency quoted Rumyantsev as saying the plant is scheduled to go online at the end of 2006, with 100 tonnes of fuel to be delivered about six months before.
Aghazadeh told state television that Bushehr was likely to be fully equipped within 10 months, with tests taking place by mid-2006.
Russian diplomats say the United States has been lobbying against Moscow's involvement in Iran's nuclear programme "on a daily basis" - but Russia has stuck by the lucrative contract and an option to build a second reactor at Bushehr along with plants at other locations.
They say the huge contract has helped save Russia's atomic energy industry, and emphasise there is no way that Bushehr - also under International Atomic Energy Agency (IAEA) scrutiny - could constitute part of a weapons programme.
In Washington's tough line on Iran, some in Russia see an unstated aim to thwart Russia's commercial and strategic interests.
The United States argues Iran - lumped into an "axis of evil" - has no need for nuclear energy because of its massive oil and gas reserves and wants to see Tehran hauled before the UN Security Council for possible sanctions.
Tehran counters that it needs to free up fossil fuels for export and meet increased energy demands from a burgeoning population.
Iran also intends to produce its own nuclear fuel for future plants - hoped to produce 7,000 megawatts of electricity by 2020 - a drive at the centre of the current stand-off with the international community.
While Bushehr symbolises Iran's nuclear ambitions, of greater Western concern is its work on the nuclear fuel cycle elsewhere in the country.