The bomb exploded next to a bus belonging to the IRGC Ground Forces as it was travelling down Tharollah Boulevard in the city of Zahedan, close to the Afghan border, the official news agency IRNA said.
The government-run news agency Fars reported that the blast occurred at 6.30 a.m. local time.
IRNA quoted Soltanali Mir, the provincial director general of political affairs, as saying that five individuals had been arrested in connection with the bombing.
Two of the individuals arrested were armed with grenades and were carrying video cameras, Mir said.
He added that Iranian security forces had killed a member of an outlawed group in the province on Tuesday.
There has been no official claim for the bombing.
Sistan-va-Baluchistan Province is home to Baluchis, a predominantly Sunni Muslim ethnic minority.
Iran has witnessed escalating unrest since 2006 in areas populated by Baluchis, who complain of discriminatory and repressive policies by the theocratic regime.
In recent months, Iranian authorities have stepped up executions in the restive province in what many Baluchis believe is a response to a spate of attacks by dissidents on government and security officials.
A Baluchi group opposed to the government of Iran calling itself Jondollah has claimed responsibility for a string of armed attacks on government officials.
In March, the group claimed responsibility for an armed attack on a convoy of government officials in Sistan-va-Baluchestan, which left 22 government and provincial officials dead and at least seven, including the governor of Zahedan, critically wounded.
In April, Irans state-run media reported that security forces had killed the groups leader Abdolmalek Reigi along with 11 of its members on the border with Afghanistan.
The claim proved to be false after Reigi subsequently appeared on an Arabic-language satellite channel denying such rumours.
The group claims that it does not target civilians.
