Venezuela is building unmanned drone aircraft as part of military cooperation with Iran and other allies, President Hugo Chavez said, in a move likely to heighten U.S. anxiety over his socialist government's role in the region.

Referring to a Spanish media report that U.S. prosecutors are investigating drone production in Venezuela, Chavez said late on Wednesday: "Of course we're doing it, and we have the right to. We are a free and independent country."

In a televised speech to military officers at Venezuela's Defense Ministry, Chavez said the aircraft only has a camera and was exclusively for defensive purposes. "We don't have any plans to harm anyone," he said.

"We are doing this with the help of different countries including China, Russia, Iran, and other allied countries," he added, apparently referring both to drone construction and to other projects including a munitions and weapons factory.

During the lengthy broadcast, Chavez spoke by satellite link with a Venezuelan military officer at the state-owned arms maker Cavim.

The officer stood by a small drone labeled Harpy-001. He said it was 13 feet by 8 feet, could fly as high as 10,000 feet and for as long as 90 minutes. Venezuela has produced three of them, he said.

"They are made in this country with military engineers who went to do a course in the sister Republic of Iran," said the officer.

Chavez, whose stridently anti-Washington politics are highly popular in his OPEC nation, has expanded ties with Iran amid growing pressure by the United States and other nations on Tehran over its nuclear program. Iran denies Western charges that it is seeking to build nuclear weapons.

Spain's ABC reported this week that U.S. prosecutors in New York were looking into Venezuela's construction of drones and purchase of drones from Iran, citing sources familiar with the investigation.

'INTERNAL DEFENSE'

In March, U.S. News and World Report's military blog DOTMIL quoted General Douglas Fraser, the head of U.S. Southern Command, as saying Iran planned to build "fairly limited capacity" drones in Venezuela for the Venezuelan military that were similar to the U.S.-made unarmed ScanEagle class of drones.

"It's not up into the Predator class," DOTMIL quoted Fraser as telling reporters in Washington, referring to the bigger drones that can be armed with air-to-ground Hellfire missiles.

He said the drones were likely for "internal defense."

Iran in December said it shot down a U.S. military drone that had violated its airspace and demanded an apology from Washington. Iranian officials said later they were close to cracking the Lockheed Martin Corp aircraft's technology.

Chavez said Venezuela would soon receive visits from Iranian President Mahmoud Ahmadinejad, who came to Caracas in January, as well as Belarusian President Alexander Lukashenko.

He scoffed at what he said would be the likely U.S. reaction to Venezuela building drones.

"Pretty soon someone is probably going to say there's an atomic bomb on the tip of it," joked Chavez, dressed in military fatigues, adding that the drone could be used in oil and mining exploration.

Armed drones have become a key weapon in the U.S. fight against Taliban and other militants in Pakistan, sparking outrage by Pakistan's government. U.S. officials said last week a drone strike in Pakistan killed al Qaeda's second-in-command.

(Additional reporting by Daniel Wallis ; Editing by Will Dunham )