Iran's top legislative body ruled out annulling the disputed presidential poll but said it was prepared for a partial recount.
In what appeared to be a first concession by authorities to the protest movement, the 12-man Guardian Council said it was ready to re-tally votes in the poll in which hard-line President Mahmoud Ahmadinejad was declared the runaway winner - a result that has prompted the biggest street protests since the 1979 Islamic revolution
But the powerful Council rejected reformist calls to annul Friday's election that set off fast-moving political turmoil, riveting attention on the world's fifth biggest oil exporter which is locked in a nuclear dispute with the West.
Iranians outraged by Mirhossein Mousavi's defeat in what they viewed as a stolen election plan another rally on Tuesday, even though seven people were killed on Monday on the fringes of a huge march through the streets of Tehran.
Mousavi, however, urged his supporters not to attend the rally "to protect lives", saying it was cancelled. Ahmadinejad's supporters called for a counter-rally at the same Tehran square, possibly setting the scene for more confrontation.
Further protests, especially if they are maintained on the same scale, would be a direct challenge to the authorities who have kept a tight grip on dissent since the 1979 overthrow of the U.S.-backed shah after months of demonstrations.
Iranian state television said today the "main agents" in post-election unrest had been arrested with explosives and guns. It gave no further details in a breaking news headline.
The United States and its European allies have been trying to persuade Iran to halt nuclear work that could be used to make an atomic bomb. Iran says it wants nuclear energy only to generate electricity.
US President Barack Obama, who has sought to reach out to Iran asking its leadership to "unclench its fist", said he was deeply troubled by the post-election violence and that protesters who had taken to the streets had inspired the world.
A spokesman for the Guardian Council said only that it was "ready to recount the disputed ballot boxes claimed by some candidates, in the presence of their representatives".
"It is possible that there may be some changes in the tally after the recount," spokesman Abbasali Kadkhodai was quoted as saying by the official IRNA news agency.
"Based on the law, the demand of those candidates for the cancellation of the vote, this cannot be considered," Kadkhodai told state television.
Mousavi had asked the Guardian Council to annul the vote, but has said he was not optimistic about its verdict.
Despite the protests and upheaval, Ahmadinejad was in Russia for SCO talks today on his first foreign trip since official results showed he secured a second term.
The Shanghai Cooperation Organisation (SCO), which includes Russia and China, congratulated Ahmadinejad on his win.
Iran's English-language Press TV said seven people were killed and several wounded at the end of Monday's rally - a mainly peaceful gathering attended by many tens of thousands - when "thugs" tried to attack a military post in central Tehran.
It gave no details of how the seven deaths occurred.
An Iranian photographer at the scene had said Islamic militiamen opened fire when people in the crowd attacked a post of the Basij religious militia. He said one person was killed and many wounded in the shooting.
The Basij militia is a volunteer paramilitary force fiercely loyal to Supreme Leader Ayatollah Ali Khamenei who has the final say on all matters of state and who replaced revolutionary leader Ayatollah Ruhollah Khomeini when he died 20 years ago.
Tehran has already seen three days of the biggest and most violent anti-government protests in three decades and Mousavi supporters have pledged to keep up the pressure.
"Tomorrow at 5pm (1230 GMT) at Vali-ye Asr Square," some of the crowd chanted at Monday's march, referring to a major road junction in the sprawling city of 12 million.
"Mousavi ... urged his supporters not to attend today's rally to protect their lives," his spokesman said today. "The moderates' rally has been cancelled."
Ahmadinejad supporters planned a rally at the same square just an hour earlier, the semi-official Fars News said.
Leading Iranian reformist Mohammad Ali Abtahi, a former vice-president who backed pro-reform candidate Mehdi Karoubi in the election, was arrested early today, his office said.
There have been widespread arrests across the country since the election protests broke out. The ISNA news agency said today around 100 people were arrested in unrest near a university in the southern city of Shiraz.
Demonstrators filled a broad avenue in central Tehran for several kilometres on Monday, chanting "We fight, we die, we will not accept this vote rigging", in support of Mousavi.
"Tanks and guns have no use any longer," chanted the protesters in a deliberate echo of slogans used leading up to the 1979 revolution.
Members of Iran's security forces have at times fired into the air during the unrest and used batons to beat protesters who have pelted police with stones.
Gunfire was heard in three districts of wealthy northern Tehran late on Monday and residents said there had been peaceful pro-Mousavi demonstrations in the cities of Rasht, Orumiyeh, Zahedan, and Tabriz on Monday.Reuse content