Merchants in Tehran's main bazaar closed their shops in protest on Wednesday against the plunge of Iran's currency, which has shed more than a third of its value in less than a week.

Footage posted online shows a group of striking merchants walking in the Grand Bazaar, the traditional business hub in Iran's capital, calling on other shop owners to close their shops.

"If you have dignity close your shops" the protesters are heard chanting on the video.

Police threatened merchants who closed their shops and launched crackdowns on pavement money changers, as part of strict measures being used by the authorities to halt the currency plunge.

The measures underscore the serious concern by officials facing one of the most potentially destabilizing scenarios, which has been partly blamed on the fallout from Western sanctions over Tehran's nuclear program.

The state's reaction led to clashes with riot police in the capital city, according to media reports.

Some protesters were shouting slogans against President Mahmoud Ahmadinejad — a rare and risky show of dissent in Iran.

"Everyone wants to buy dollars, and it's clear there's a bit of a bank run," Reuters quoted a Western diplomat in Tehran as saying.

"Ahmadinejad's announcement of using police against exchangers and speculators didn't help at all. Now people are even more worried."

Tear gas was used to disperse demonstrators, some of whom were setting fire to tires and garbage cans, the BBC reported.

Potentially destabilizing

Eyewitnesses told the BBC that scores of people had gathered outside the central bank's offices, chanting anti-government slogans.

Police fired tear gas to disperse the demonstrators angered by the plunge in the value of the rial, the news agency reported.

The protesters blame the regime's policies for the country's economic crisis.

The rial has hit record lows against the U.S. dollar almost daily as Western economic sanctions imposed over Iran's disputed nuclear program have cut Iran's export earnings from oil, undermining the central bank's ability to support the currency, Reuters said.

That has led Iranians to buy hard currencies, such as the U.S. dollar, pushing down the rial. With Iran's official inflation rate at around 25 per cent, the currency's weakness is hurting living standards and threatening jobs.

With files from The Associated Press