The charge d'affaires at the Spanish embassy in Tehran said Iranian authorities had made contact with the kidnappers, who apparently want to trade the hostages for money or the release of jailed colleagues. "It is still not clear which," Juan Carlos Gafo said.
Spanish officials had earlier suspected that drug-trafficking could be a motive. Kerman lies on the main route for drug smugglers heading from Pakistan and Afghanistan to Europe. IRNA reported that a special committee had been formed to investigate the kidnapping.
The hotel receptionist told reporters the kidnappers had arrived in the evening while the tourists were having dinner. "A woman wearing a black veil and an armed man came up to me and put an AK-47 to my head," the receptionist said in a telephone interview from Dubai. "The man said, `We need foreigners. How many do you have?'."
The man followed a hotel employee to the dining room and seized the three Spaniards and the Iranian. A second kidnapper went to the rooms and abducted the Italian hostage.
The two priests, Fr Joaquin Fernandez, 70, and Fr Cosme Puerto, 57, are from the Dominican College of Atocha in Madrid, the Spanish news agency Efe reported. The third Spaniard was named as Pedro Garcia, but his age and occupation were not given. The agency said that Fr Fernandez suffers from an unnamed illness.
A Western diplomat in Tehran said the Italian hostage was Massimo Cattabriga, 39, an engineer. The diplomat had been told the kidnappers were two women and three men, armed with assault rifles.
Two Italian diplomats and an Iranian from the Spanish embassy were on their way to Kerman, diplomats said in Tehran. They had been told the kidnappers chose the hostages at random from nine tourists in the hotel.
Kerman's security chief, Abbas Doagooie, said police were pursuing the kidnappers and all exits and entries to the province were being monitored. An Iranian Foreign Ministry spokesman called the attack "an ugly, inhuman act".
Iran has been trying to promote tourism to boost its faltering economy, but it brought in only $270m (pounds 170m) in 1997, according to government figures.