SEOUL (AP) -- LG Electronics Inc., the world's fifth-largest manufacturer of mobile phones, has started producing handsets in Iran with a local partner, the South Korean company said Tuesday.

Annual capacity is 1 million phones, said LG spokeswoman Judy Pae, with production starting this month.

Pae said she could not identify the Iranian partner, adding that LG was also not in a position to discuss other details of the production arrangement nor even the location in Iran of the facility.

MADIRAN Group, which describes itself as Iran's leading technology and office automation company, said on its Web site in a press release dated Feb. 17 that it began producing five models of handsets under license from LG Electronics.

The privately-owned company also said that it also manufactures ''LG brand LCD and CRT monitors,'' referring to liquid crystal displays and cathode ray tubes used in televisions.

Iran's Minister of Industries and Mines Alireza Tahmasbi attended a ceremony marking the start of the phone production, the release said.

Pae said LG's motivation for entering the Iranian market was twofold. ''We have been pushing efforts in the Middle East market,'' Pae said. ''We're not in a very competitive position yet. We'd like focus on that market.''

Also, by manufacturing in Iran, LG can avoid the country's steep tax on imported handsets.

''If we make the product in Iran we can save the 60 percent tariff,'' she said.

LG also plans to export the handsets to other markets in the Middle East, she said.

LG Electronics, South Korea's leading home appliance producer, manufactures an array of products including air conditioners, refrigerators, and flat-screen televisions.

In the Middle East and North Africa, the company has subsidiaries in Morocco, the United Arab Emirates and Egypt. It also makes air conditioners in Turkey and TV tuners and components in Egypt.

Middle East sales accounted for about 3 percent of LG Electronics' global revenues of $38.6 billion (€29.3 billion) in 2006.