Parliamentarians have voted to split Iran's largest province into three, a proposal that has sparked violent protests in the past.
Lawmakers on Sunday said the northeastern province, which grows saffron - the world's most expensive spice - should be carved up to allow more equitable budget allocation.
Some even accuse the regional capital, Mashhad, of swallowing the bulk of state money.
But the decision could prove dangerous for a region famed as the home of the medieval poet Umar al-Khayyam.
Dozens were injured and scores arrested in street clashes in 2001 and 2002 when the government first proposed dividing the province, which borders Afghanistan and Turkmenistan.
Under the decision, which must be approved by the conservative Guardian Council watchdog, Khorasan will be divided into Northern, Southern and Razavi Khorasan, with capitals in Bojnurd, Birjand and Mashhad respectively.
Protests against division have in the past centred on the town of Sabzevar, the province's largest urban centre after Mashhad.
Some residents fear they will lose influence and slices of the budget when rival cities are made new regional capitals. The region has many strong tribal loyalties.
"Dividing Khorasan will make the country poorer and stir up tension and inflation. This move harms vulnerable people," parliamentarian Husain Ansarirad said in the debate, broadcast live on state radio.
Khorasan lies on the ancient Silk Road, which carried spice caravans to Europe from China. It still prospers from its status as a trade crossroads.