An Iranian official said police had restored order after 12 arrests, but a leader among the Arab protesters said four protesters were killed and many injured in clashes with authorities.
Iran's Interior Ministry told Reuters it had no immediate information on deaths and would check with security forces.
Unrest among the Arab minority flared in April, when five people were killed and about 200 arrested. The street fighting was kindled by rumours that Tehran was planning to force ethnic Arabs to relocate.
The conservative Kayhan newspaper has reported that the protests were sparked by con men who had taken advance payments on cheap cars and appliances and then failed to come up with the goods.
"A certain number of rioters who provoked people, set fire to tyres and to a branch of the Sedarat Bank," local judiciary official Saeed Saadi was quoted as saying.
He added that the situation in the predominantly Arab city close to the Iraqi border had calmed by Tuesday night, although 12 rioters and 18 con men had been arrested over the three previous nights.
"The duty of the police was to stop the troublemakers as opposed to those who just wanted their money back," he said.
Intelligence official Ali Yunesi: US,
Britain instigating ethnic tensions
"Twelve people were arrested," he added.
Tehran is sensitive about any whisper of unrest in Khuzestan, home to its vast oilfields which account for 80% of export earnings.
Mahmoud Ahmad al-Ahwazi, from the Ahvaz Arab People's Democratic-Popular Front, a movement fighting for the independence of Khuzestan, said protests were picking up in the run-up to the 100th-day anniversary of the April unrest.
"Four people have been shot dead by police," he told Reuters by telephone from Britain, where he is based. "Tonight will be the big demonstration," he added.
He said the protests had a strong ethnic tone with people hanging Khuzestani Arab flags from buildings.
About 3% of Iran's 67 million people are Arabs.
Bomb attacks against government buildings in Khuzestan killed seven people in June.
"Four people have been shot dead by police. Tonight will be the big demonstration"
Mahmoud Ahmad al-Ahwazi,
Ahvaz Arab People's Democratic-Popular Front
Iran's western border is a patchwork of ethnic groups including Arabs, Kurds and Azeris.
Iranian authorities say order has been restored in the northwestern Kurdish town of Mahabad, where there was rioting this month.
Iranian authorities said the unrest was not ethnically motivated, but Kurdish leaders disagree.
On 16 June, Iranian Intelligence Minister Ali Younesi said the US and Britain were seeking to instigate ethnic and religious tensions in the Middle East and in Iran.