UNITED NATIONS (CNN) -- The U.N. Security Council appeared headed for a review of its relations with Baghdad after calling Iraq's decision to stop cooperating with U.N. weapons inspectors "totally unacceptable."

Secretary-General Kofi Annan proposed what he called "a more direct dialogue than has occurred hitherto" between Iraq and the council.

"It is my view that, rather than allowing this situation to deteriorate into a crisis, the Security Council should engage with the Iraqi authorities in order to resolve the problem," Annan said in remarks to the council that were later made public.

That reflected comments by chief U.N. weapons inspector Richard Butler, who has spoken several times of finding "a slightly new creative way" of avoiding the "repeated syndrome" of a standoff between the United Nations and Iraq.

Neither Butler nor Annan provided details. But there have been unconfirmed reports that Iraqi Deputy Prime Minister Tareq Aziz, who spoke with Annan by phone Thursday, might come to New York soon.

The current standoff began after Butler on Monday rejected a demand by Aziz in Baghdad that he immediately certify Iraq as free of all weapons of mass destruction.

That would clear the way to Iraq's prime objective: an end to punishing sanctions in force since its 1990 invasion of Kuwait.

Iraq raised the stakes Wednesday by saying it would no longer work with Butler's UNSCOM unless it was drastically overhauled and its headquarters moved to Geneva or Vienna from New York. Iraq said such steps are needed to eliminate what Iraq regards as U.S. influence aimed at maintaining sanctions indefinitely.

But both the Security Council and Annan have made clear that Iraq must abide by Gulf War disarmament resolutions.

Annan, like the council, said that Iraq was "clearly in violation" of council resolutions and of an agreement that he signed in Baghdad last February, intended to assure full access for U.N. weapons teams.

The February pact averted attacks against Iraq by the United States and Britain in response to Iraqi interference.

Annan said after Thursday's council meeting that he hoped military force would not be needed in the current situation.

"I hope it is not going to be necessary, but I think we need to be determined, we need to be persistent, and we need to press on," he said.

U.N.: Inspection conditions 'unacceptable'

U.N. arms monitors went out for work as usual on Friday for the second straight day since Baghdad decided to suspend cooperation with weapons inspectors, witnesses said.

They said the United Nations experts, who operate surveillance cameras installed in sites already identified by inspectors looking for evidence of prohibited weapons, left their Baghdad headquarters in a convoy of four cars.

The experts were accompanied by Iraqi escorts, they added.

Iraq has allowed UNSCOM to continue limited weapons monitoring on condition that the monitors regard Iraq's sovereignty and dignity.

American U.N. envoy Bill Richardson confirmed to CNN that low-level inspections took place Friday but said the conditions under which they were being done were still unacceptable.

"The Iraqis have imposed unacceptable conditions on the work of the inspectors. They have to have full unfettered access to all sites at all times without interference," Richardson said.

Reuters contributed to this report.

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