Saudi Arabia denied it backed the gunmen who killed 29 people at a military parade in southwestern Iran, almost half of them Revolutionary Guards, the Saudi state news agency reported on Tuesday.
Iranian Supreme Leader Ayatollah Ali Khamenei said on Monday the attackers were paid by Saudi Arabia and the United Arab Emirates (UAE), and pledged the Islamic Republic would "severely punish" those behind the assault.
"Saudi Arabia rejects and condemns the false accusations that Iranian officials have made about Saudi Arabia supporting the events that took place in Iran last Saturday," SPA quoted a foreign ministry statement as saying.
"Saudi Arabia's policy is clear regarding its non-interference in the domestic affairs of other countries. The Iranian regime, in contrast, interferes in the affairs of its neighbours and is the leading sponsor of terrorism in the region and the world."
The deputy head of Iran's Revolutionary Guards also accused the United States and Israel of involvement and said they should expect a devastating response.
Arch-rivals Saudi Arabia and Iran, both oil super-powers, are waging a war for influence across the Middle East, backing opposite sides in conflicts in Syria, Yemen, Iraq and Lebanon.
On Saturday, gunmen fired on a viewing stand in Ahvaz where officials had gathered to watch an annual parade marking the start of Iran's 1980-88 war with Iraq.
'Arab reactionary countries'
Iran, meanwhile, arrested 22 people allegedly linked to last week's deadly attack, the intelligence ministry said.
"The five members of a terrorist squad affiliated to jihadist separatist groups supported by Arab reactionary countries were identified," the ministry said in a statement on Tuesday.
"The terrorists' hideout was found and 22 people involved [in the attack] were arrested," it said, adding explosives were seized along with military and communications equipment.
"Foreign sponsors and supporters of this terrorist act have also been identified. More information will be provided on them in due course," the statement said.
Gunmen dressed in military uniform opened fire on marching soldiers, bystanders, and government officials, who had gathered to watch the parade on Saturday.
Iranian officials were quick to point the finger at an Arab separatist group and its alleged international backers. They said that four gunmen had been killed.
According to the Iranian Students' News Agency (ISNA), an armed group called al-Ahvaziya claimed responsibility for the attack, while the Islamic State of Iraq and the Levant group (ISIL) also said it was behind the assault.
President Hassan Rouhani vowed to deliver a "crushing response", while Iran's Supreme Leader Ayatollah Ali Khamenei linked the attack to the US and its "allies in the region".
Ahvaz is the capital city of Khuzestan province, which has the country's largest oil reserves. With its proximity to Iraq and the presence of a large Arab minority, the area has seen ethnic violence in the past
Khuzestan was a major battleground of the 1980s war with Iraq and it saw unrest in 2005 and 2011.
The province has also been the site of recent protests over a nationwide drought and the economy.
