The state news agency IRNA said some 24 people had been wounded. State television said two police officers were killed, lowering an initially reported death toll of three without explanation.
The so-called Ansar al-Furqan terrorist group later claimed responsibility for the assault.
He was apparently referring to a highly successful operation by Iranian intelligence services, which led to the capture in 2010 of Abdolmalek Rigi, the ringleader of the so-called Jundullah terror group.
That operation followed a 2009 terror attack by extremist terrorists that claimed over 40 lives in Sistan-and-Baluchestan Province. The perpetrators behind this dastardly attack should be brought to justice expeditiously.
Chabahar city is around 100 km from Iran's border with Pakistan.
Iranian forces, from time to time, bust terrorist ringlets in the province, foiling their planned attacks and confiscating weapons and ammunition in the course of such security operations.
Pakistan strongly condemns terrorist auto bomb attack in Chahbahar in brotherly neighbouring Iran that has taken lives of 3 innocent people while injuring others.
Huawei CFO arrested in Vancouver as U.S. seeks her extradition
And perhaps more importantly, USA officials have urged other countries to ban telecom companies from purchasing Huawei equipment. USA national security officials have said Huawei poses a security risk due to its alleged close links to the Chinese government.
Chabahar, on Iran's south-eastern coast near the border with Pakistan, is home to a recently built port and is an "economic free zone". Later reports dismissed that the police chief of Chabahar was among the casualties. New Delhi considers the port in Chabahar, which lies in Sistan-Baluchistan province of Iran, very crucial for its strategic interest in the region.
The attack comes as Iran's economy reels in the wake of the United States re-imposing sanctions lifted by Tehran's nuclear deal with world powers.
State authorities did not identify who was behind the attack.
Arab separatists and the Islamic State group both claimed responsibility for the attack.
An official said that "the terrorist who carried out the attack was killed".
Another coordinated June 7, 2017 IS group assault on parliament and the shrine of Ayatollah Ruhollah Khomeini, the leader of Iran's 1979 Islamic Revolution, killed at least 18 people and wounded more than 50.