At least 29 people, including women, children and Revolutionary Guard Corps (IRGC) personnel, were killed and 57 injured after gunmen targeted a military parade in southwestern Iran's Ahvaz city on Saturday, state media said.
The attack is claimed by the Islamic State group.
The semi-official Fars news agency said that four gunmen on a motorcycle, who were disguised as military personnel, carried out the attack.
Deputy governor in Khuzestan province, Ali Hosein Hoseinzadeh, said that two gunmen were killed by security forces and two others were injured, reported Al Jazeera.
The attack prompted President Hassan Rouhani to warn of a 'crushing response'.
'The response of the Islamic Republic of Iran to the smallest threat will be crushing,' Rouhani said on his official website.
'Those who give intelligence and propaganda support to these terrorists must answer for it,' he said.
Foreign Minister Mohammad Javad Zarif tweeted that the attack near the Iraqi border was carried out by 'terrorists recruited, trained, armed & paid by a foreign regime'.
Several parades are being conducted across Iran to mark the anniversary of the beginning of the Iran-Iraq war, that began from 1980 to 1988.
Ahvaz, the capital of Khuzestan province, is rich in oil reserves and has seen a number of attacks by the Arab separatists in the past.
The city was also one of the few venues of anti-government protests late last year.
With agency inputs.
