The largest protests in Iran in three years reached a deadly climax overnight into Thursday, with several people killed, Iranian media and a rights group have reported.

The bloody violence marks a significant escalation of the protests over Iran's ailing economy, after authorities on Tuesday unusually offered to set up a "dialogue mechanism".

A "source with knowledge" cited by the semi-official Fars news agency said clashes in the western city of Lordegan between police and what it said were armed protesters had killed multiple people.

Violence and tensions flare in Iran

According to the rights group Hengaw, security forces opened fire on the protesters in Lordegan, killing and wounding several in the crowd.

Meanwhile, authorities confirmed one death in the western city of Kuhdasht, and Hengaw said another had been shot dead in the central province of Isfahan.

The unrest over soaring inflation and a record slump in the currency began on Sunday among shopkeepers and traders in the capital Tehran.

But they have since spread to different groups and parts of the country, with university students in Tehran joining in, and demonstrators attempting to break into a government building on Wednesday.

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