The earthquake on Tuesday, centred on the town of Zarand in Kerman province, 700km southeast of Tehran, struck at 5.55am (0225 GMT), state television said.
Aljazeera's correspondent in Iran, Muhammad Hasan al-Bahrani, said at least 400 had been killed and 1000 injured. He added that the number of casualties was expected to rise.
Earlier, Iran Interior Ministry spokesman Jahanbakhsh Khanjani said the latest figures his ministry had were 80 dead and 300 injured.
The head of Kerman Natural Disaster Headquarters, Mohsen Salehi, was quoted by the official Irna news agency as saying the quake had killed at least 30 people and injured 500.
He said the destruction in five villages was between 20% and 70%.
Local officials in Kerman province said about 40 villages were hit by the earthquake, two of which were totally devastated.
Emergency teams and some Iranian helicopters had been sent to the affected areas, Aljazeera's correspondent said.
The Iranian government deployed thousands of army soldiers and revolutionary guards and hundreds of Red Crescent members to the area.
Escaped heavy damage
Interior Ministry spokesman Khanjani said many people seemed to have avoided the worst of the quake.
"As it was early morning and people were awake, they could run out of their houses," he said.
"We're not expecting a high death toll," he added, saying only two villages had been heavily damaged in the tremor.
Major settlements appeared to have escaped heavy damage, suggesting the overall toll would not be as high as in some similar strength tremors in the earthquake prone country.
Kerman Governor Muhammad Ali Karimi told television that aid groups had been sent to the villages, but he had not yet asked for any help from other provinces.
A strong earthquake hit the city of Bam in Kerman province in December 2003 killing 31,000 people.