Videos posted on Twitter, purportedly from Chabahar, showed thick smoke rising from the area.
No militant group immediately claimed responsibility.
A general view of the scene of a auto bombing in front of a police station in the city of Chabahar, on December 06, 2018 in southern Iran.
At least two people were killed and several wounded outside police headquarters in the port city of Chabahar when a suicide bomber blew up a vehicle.
The Indian foreign ministry strongly condemned the "despicable terrorist attack".
The suicide attacker, driving a vehicle loaded with explosives, drove up to the police headquarters, according to General Mohammad Pakpour of the Islamic Revolutionary Guard Corps. "As we've made clear in the past, such crimes won't go unpunished", Foreign Minister Mohammad Javad Zarif tweeted.
Iranian authorities said Rigi who headed the militant group Jundollah was captured on a flight from Dubai to Kyrgyzstan.
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He was apparently referring to a highly successful operation by Iranian intelligence services, which led to the capture in 2010 of Abdolmalek Rigi, the ringleader of the so-called Jundullah terror group.
Chabahar is a key port city on the Gulf of Oman about 100 kilometers west of Iran's border with Pakistan.
India has said it is ready to invest up to $500m in the development of the port that is key to its ambitions to chart a route to landlocked Central Asian countries and Afghanistan, bypassing Pakistan.
The attack comes as Iran's economy reels in the wake of the USA re-imposing sanctions lifted by Tehran's nuclear deal with world powers.
Last year, in the first deadly assault claimed by Islamic State in Tehran, 18 people were killed at the parliament and mausoleum of Ayatollah Ruhollah Khomeini, founder of the Islamic Republic. "There can be no justification for any act of terror", the MEA said.
"Foreign-backed terrorists kill & wound innocents in Chabahar". Ansar al-Furqan is known to operate in Iran's southeastern Sistan and Baluchistan Province, which sees occasional attacks by Baluch separatists and drug traffickers. Mark my words: "Iran WILL bring terrorists & their masters to justice".