JERUSALEM, June 20 (Reuters) - Israel responded on Wednesday to a lack of progress in talks aimed at curbing Iran's nuclear programme by demanding that the West impose stiffer economic sanctions on Tehran and hinting anew that a military option was still on the table.

Six world powers and Iran failed to secure a breakthrough at talks in Moscow this week, the third round under the latest diplomatic initiative, and set no date for more political negotiations.

"It is time for the United States and Western powers to impose more severe sanctions in the oil embargo and financial sectors in order to stop Iran's nuclear development programme," Vice Prime Minister Shaul Mofaz of the centrist Kadima party said in a written statement after talks in Washington with Secretary of State Hillary Clinton.

Mofaz, a former defence minister and military chief, said that in addition to economic steps there was a need "to continue to prepare all other options", an oblique suggestion that a military attack to prevent Iran developing a nuclear weapon remained a possible course of action.

While Western powers suspect Iran of trying to develop the capacity to build a nuclear bomb, Iran says its nuclear programme is destined for energy production alone.

Before reports of the Moscow talks breaking up, Mofaz was quoted as telling reporters in Washington that any use of military power "should be the last option, and I believe that this option should be led by the U.S. and the Western countries".

Mofaz heads the largest party in Prime Minister Benjamin Netanyahu's right-leaning ruling coalition, since the two leaders forged a partnership last month to avoid threats by their opponents to seek an early election.

Western concern that Israel, which regards Iran's atomic project as an existential threat given its calls for the demise of the Jewish state, might resort to force has fuelled efforts to continue discussions with Tehran.

Technical talks with Iran have been scheduled for July 3 in Istanbul, but no further political talks have been agreed, and some experts have said the risk of war will increase unless diplomacy is renewed.

Israel is widely believed to be the only Middle East country with nuclear weapons.

On his four-day visit to the U.S. capital, Mofaz is also seeking U.S. help in arranging a meeting with Palestinian President Mahmoud Abbas to try to renew peace talks deadlocked since 2010 over Jewish settlement building in occupied territory. (Writing by Allyn Fisher-Ilan; Editing by Kevin Liffey)