The protest is said to have broken out in Javanrud - a Kurdish town in the country’s west - at the funeral of two people who were killed on Sunday.
Videos posted online showed dozens of protesters taking shelter in alleyways as heavy gunfire echoed through the streets, according to the Associated Press news agency.
Some showed people lying motionless and bloodied in the streets, while others showed residents gathering at a local hospital to donate blood.
Anti-government protests have been taking place across Iran since the September 16 death of 22-year-old Mahsa Amini who died in the custody of the country’s morality police in the capital, Tehran.
Hengaw, a Kurdish human rights group, said Iranian security forces unleashed gunfire on protesters on Monday in Javanrud, where a funeral was held for two protesters killed the day before. It cited witnesses as saying Iranian forces used heavy machine guns.
Hengaw said seven people were killed on Monday, while another group, the Kurdistan Human Rights Network, put the toll at five.
The latter group said many of the wounded were being treated in homes because of fears they could be arrested in hospital, making it difficult to confirm the toll.
It said several were shot in the head or chest.
Iranian authorities heavily restrict media coverage of the protests and have periodically shut off internet access, making it difficult to confirm details of the unrest.
The semi-official Fars news agency reported protests in Javanrud on Sunday night, saying security forces were fired upon with live ammunition.
It said two people were killed and four wounded. There were no immediate reports in state-linked media about the violence on Monday.
Funerals have often been the scene of renewed protests in recent weeks, as they were during the 1979 Islamic Revolution which brought the clerics to power. The latest demonstrations mark the biggest challenge to the theocracy in over a decade.
At least 426 people have been killed and more than 17,400 arrested, according to Human Rights Activists in Iran, a group monitoring the unrest. It says at least 55 members of the security forces have been killed.
Jalal Mahmoudzadeh, a politician representing the Kurdish city of Mahabad, told the Etemad daily 11 people have been killed during protests in the city since late October, many of them in recent days. He said some members of the security forces fired at homes and businesses on Saturday and called on authorities to adopt a softer touch.
The unrest cast a shadow over the World Cup on Monday, where the Iranian national team faced England. Iran‘s players did not sing along to their national anthem and some fans chanted Ms Amini’s name in the 22nd minute of the match.