The blast came at a time of high tensions between the United States and Iran, which is under intense international pressure over its nuclear activities.

Local officials have been dispatched to the site to identify the cause of the explosion in an uninhabited area in the south of the country, according to Arab-language television Al-Alam.

A government source told the television the explosion could have been the result of a fuel tank falling from an Iranian plane, contradicting reports that it was a missile.

Daylam is about 150 kilometres (90 miles) from Bushehr, where a controversial nuclear plant is being built with Russian help.

The United States has warning of possible military action over Iran's nuclear activities, charging that its efforts to develop nuclear fuel are a cover for an atomic weapons programme.

News of the blast sent the US stock market lower.

US media reports have said the United States has been flying drones over Iran since April 2004, seeking evidence of nuclear weapons programmes and probing for weaknesses in Iran's air defences.

Earlier Wednesday, Iranian Intelligence Minister Ali Younessi confirmed the presence of "American spying instruments" in the skies over Iran and warned that they would be hit. However, he spoke of satellites rather than spy planes.

"We have the means to hit them (these instruments) and if get near, our anti-aircraft defence systems will attend to it," said Younessi. "Americans have been conducting spying activities in Iranian sky for a long time."

Washington, which accuses Iran of being a prime sponsor of terrorism, claims Iran's nuclear programme is a cover for plans to build atomic weapons.

However, Iran has staunchly denied the allegations and the head of the UN nuclear watchdog, Mohamed ElBaradei, said in an US interview published Wednesday there was no evidence that Tehran was developing nuclear weapons.

Israeli Foreign Minister Silvan Shalom claimed during a visit to London that Iran was six months away from having the knowledge to build a nuclear bomb, and said the problem must be tackled by the entire world.

Relations between Tehran and Washington have deteriorated since US President George W. Bush took office for the second time in January, caused principally by the nuclear standoff and Iran's alleged interference in Iraq.

Bush has refused to exclude the possibility of military strikes should Iran continue with its alleged atomic armaments programme.

To stave off the threat of UN sanctions, as demanded by Israel and the United States, Britain, France and Germany are trying to convince Iran to stop uranium enrichment in exchange for economic and political rewards.

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