The letter, attributed to former Iranian Vice-President Muhammad Ali Abtahi, promoted migration of the Arab population to the northern provinces of the country.
The document resulted in clashes between police and ethnic Arabs in the provincial capital of Ahwaz.
Several state buildings, including banks, and police cars were damaged and at least three people were injured, according to the official Islamic Republic News Agency (Irna).
But Iranian government spokesman Abd Allah Ramezanzadeh said on Sunday that the letter was forged and aimed at provoking ethnic tensions.
"President Muhammad Khatami had ordered the Intelligence Ministry and the Supreme National Security Council to identify those behind the unrest," Ramezanzadeh said.
"Due to the special investigations carried out by the presidential office, it has become clear there exists no letter with such a content," he said.
"Furthermore, the content of the letter does not comply with any political principles of the Islamic Republic and it is merely aimed at inciting Iranian ethnic groups," he added.
However, the London-based Popular Democratic Front of Ahwazi Arabs in Iran told Aljazeera.net on Sunday that there was no way the letter was forged.
"They are just trying to get out of the hole they have dug themselves into," said the front's co-ordinator and official spokesman Mahmud Ahmad al-Ahwazi, referring to the government.
Ahwazi Arabs are seeking
independence from Iran
"It is not as if this was the first letter. Letters addressing the forced migration of Ahwazi Arabs are over a decade old.
"And Abtahi himself even campaigned for election on the anti-Arab platform - telling local Iranians that Ahwazis would be prevented from buying land within 20km of the border."
The group added that the violence on Friday resulted in the deaths of three Ahwazi Arabs, 26 seriously injured and more than 300 arrested.
Abtahi denied having written such a letter, saying on his website that anyone who read the letter would realise that such a decision could not be implemented in Iran.
"I have never had the prerogative to order a change of demographic composition," Abtani said.
"Letters addressing the forced migration of Ahwazi Arabs are over a decade old. And Abtahi himself even campaigned for election on the anti-Arab platform - telling local Iranians that Ahwazis would be prevented from buying land within 20km of the border"
Mahmud Ahmad al-Ahwazi,
Popular Democratic Front of Ahwazi Arabs in Iran
Governor of Khuzestan province Fath Allah Moin called on residents to remain "vigilant against divisive plots".
"The aim of the distributors of this forged letter is to disrupt the existing solidarity among peoples of the province through creating disunity and division and instigating public opinion," Moin added.
Qudrat Allah Dehqan, an official at the provincial governor's office, was quoted as saying the area had returned to calm and the police had brought the situation under control.
Dehqan said the government was investigating whether foreign agents had been behind the incident or oponments of the Islamic revolution.
"We are trying to convince ethnic Arabs of Ahvaz that those who want to perturb unity among Arabs and non-Arabs through their evil and antagonistic acts definitely are not friends of the revolution," he said.
In the Farsi language, the troubled region is referred to as Ahvaz, whereas in Arabic it is Ahwaz.
There are about 2 million ethnic Arabs in Iran, most of them living in Khuzestan, a province that accounts for almost 90% of Iran's proven oil reserve.