The source, speaking on condition of anonymity, added that 50,000 others were injured in the quake.

Earlier, the governor of Kerman province, in which Bam is located, put the toll at between 5,000 and 6,000, while state television had spoken of 30,000 injured.

The quake, which struck before dawn as most of the city's residents were asleep, was met with a swift response from the international community pledging immediate and long-term aid.

Bam was built almost entirely of mud brick and was ill-equipped to withstand a big quake, a correspondent said.

Bereaved residents wandered the streets pleading for the authorities to speed up rescue efforts.

"Seventeen of my relatives are buried under the ruins of my home - they've got to get a move on or all of them will die," said one, who gave his name only as Ali, as he attempted to shift the rubble with a spade.

"Why is help so slow in coming?" asked another survivor. "If we were in the West, all resources would have been mobilised.
An old woman, whose black veil was almost white with the dust that enshrouded everyone from head to foot, said: "We have neither water nor food."

Kerman Governor Mohammad Ali Karimi said: "One thing is sure - the historic quarter of Bam has been completely destroyed and many of our countrymen are underneath the ruins. The situation is very worrying."

The city itself had a population of 90,000 people, with the wider district home to about 200,000 residents.

Interior Minister Abdolvahed Mussavi-Lari said the top "priority is to get help to the injured who are under the rubble. It is very cold in the region, and we are very concerned" for them.

"Our second priority is to get the wounded to hospitals in the region," the minister said, adding that five military aircraft were shuttling between Bam and Kerman.

More than 90 per cent of the old city, one of the wonders of Iran's cultural heritage, was destroyed. Besides the flattened homes, the 2,000-year-old citadel, once the largest mud-brick structure in the world, was gone forever.

Funerals had already been held for 2,000 of the dead in accordance with the Islamic requirement for a swift burial, state news agency IRNA reported.

About 4,000 people had been sent to hospital in the provincial capital Kerman, about 175km to the north-west, said Assadollah Iranmanesh, a member of Karimi's staff.

State television said another 170 people had been airlifted to Tehran for treatment and that a similar number had been sent to the south-western city of Shiraz.

A three-day period of mourning was declared in Kerman province, as media and authorities broadcast urgent appeals for blood donations, blankets, food and clothes to deal with the catastrophe.

Hundreds of people crowded into Tehran hospitals, volunteering to give blood to help the injured.

Iran also quickly appealed for international aid.

"We need sniffer dogs and detection equipment, blankets, medicines, food, but also prefabricated houses because winter is coming very quickly," an interior ministry statement said.

The United Nations and the International Federation of Red Cross and Red Crescent Societies, together with a handful of European states, Turkey and Jordan and the United States, all responded to the call for urgent aid.

The UN was dispatching two aid experts to Iran later in the day, a humanitarian affairs spokeswoman said, with four more due to fly out tomorrow.

UN Secretary General Kofi Annan's office later said the world body had granted an immediate emergency grant of $US90,000 ($A122,500) for Iran.

For its part, the international Red Cross was preparing an appeal for about 10 million Swiss francs ($10.79 million) to help the victims, a spokesman in Geneva said.

Roy Probert said the appeal would cover emergency supplies such as tents, blankets and possibly field hospitals.

He added that Red Cross societies in Europe were already "queuing up" with offers of help.

And the foreign ministry in Israel, which Iran considers to be one of its greatest enemies, announced that Israeli non-governmental organisations were "looking into offering their help".

The quake hit at 5:28am (1258 AEDT) about 1,000km south-east of the capital, with a magnitude of 6.3 degrees on the Richter scale, IRNA quoted the Tehran University Geophysics Centre as saying.

Several aftershocks were recorded, IRNA said.

The Strasbourg Observatory in France put the quake at 6.6 and said it was the most powerful in the region since 1998.

The US Geological Survey National Earthquake Information Centre in Virginia measured it at 6.7.

Telephone and radio communications with the city, as well as the towns of Giroft and Kohnuj, were cut off following the quake.

The government has set up a crisis centre in Kerman, dispatching five helicopters and two huge C-130 transport planes to the quake site, IRNA quoted deputy provincial governor Hossein Marachi as saying.

Authorities urged the population not to leave the disaster zone unless seeking urgent medical assistance, public radio reported.

Earthquakes are very frequent in Iran. Since 1991 nearly 1,000 of them have claimed about 17,600 lives and injured 53,000 people, according to official figures.

On August 27, a quake of 5.7 jolted the Bam area, but caused no casualties.

The last major quake came in June, 2002, when a tremor of 6.3 hit north-western Iran, killing 235 people and injuring more than 1,300.

In June 1990 nearly 40,000 were killed in Gilan and Zanjan provinces in a massive quake measuring 7.7.

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Your much needed assistance is required to help the earthquake victims

Our prayers go out for the men, women and children who face the perils of the massive earthquake that has devastated the historic south-eastern fort city of Bam in Iran. It is predicted that around 20,000 people have died. The final death toll may reach 30,000, according to some officials. Several thousand people have been injured and most of Bam's buildings have been flattened.

IslamiCity through it's parent organization HADI (Human Assistance & Development International) has established an Iran Relief Fund. In cooperation with trusted NGO's on the field, this fund will provide assistance to the  survivors and respond to various humanitarian needs.

Your support is urgently needed!!!

With fresh aftershocks rattling the city people are exposed to hostile winter weather conditions. Survivors are sleeping on the streets - in cars, next to fires under blankets, in tents. Disease is becoming a real threat with such a large population now susceptible to the elements.

Tens of thousands of people are desperately in need of food, water and shelter following the devastating quake, the worst in the region for more than a decade.

O ye who believe! seek help with patient perseverance and prayer; for God is with those who patiently persevere. Quran 2:153