A US company is working on a $1.25 billion bio-energy project, which could see rubbish and human waste turned into electricity for Iran.

Authorities are working on details after preliminary agreements were reached in the rare joint commercial project.

California-based World Eco Energy has told reporters that it wants to produce 250 megawatts of electricity by burning everyday rubbish as well as processing algae, salt and waste water into power.

The company is hoping Iran will agree to match the investment of $US1.175 billion.

World Eco Energy says the project, in the south-western province of Chaharmahal-Bakhtiari, would create 600-700 jobs, 80 per cent of which would go to locals.

If negotiations continue as they are, the project could get underway by September this year.

Some commentators consider it an early indication of the potential for foreign business to flow back to Iran if US, European and UN sanctions are lifted.

In its search for more clean and green energy sources, Iran is nearing the end of negotiations in a deal to resolve international concern about its nuclear programme.

Iran remains officially barred from parts of the international finance world, in the form of an embargo on banks and the energy sector, but recent developments indicate more positive outlook is starting to grow.