Ahvaz is the capital of Khuzestan, which has been simmering with unrest among the province's mostly Arab population for more than a year.
Iran has blamed Britain, which has troops in neighbouring Iraq, for fomenting the instability. Britain denies the accusation.
"A percussion bomb exploded at 23:46 local time in Ahvaz on Friday. Fortunately, no one was hurt in the incident," state radio quoted Ahvaz governor Abdolaziz Fatami as saying.
The windows of two buildings were shattered from the blast and thick smoke covered the premises in which the explosion took place, the official news agency IRNA reported.
Local officials were unavailable for comment.
The Khuzestan provincial prosecutor said on Thursday 10 people had received death sentences for their part in a series of explosions that killed more than 20 people in Khuzestan last year, IRNA said.
Last week, Iran's judiciary declared an ethnic Arab party illegal, saying it incited unrest and opposed the Islamic system in Ahvaz.
Five people were killed during several days of anti-government protests in Khuzestan in April last year and 21 have been killed in three separate bomb attacks since then.
Iran hanged two men in Ahvaz in March after they were convicted of a bombing that killed six people last October.
Slightly more than half of Iran's are 69 million people are Persians and the rest are ethnic Azeris, Kurds, Arabs, Turkmen, Baluchis and Lors. About three percent are Arabs and authorities are sensitive about protests and discontent in the south-western Arab territories where most of the oil industry is based.

Copyright Reuters, 2006