Pipeline blasts happen occasionally in Iran, the world's fifth-largest oil exporter, and are often attributed to sabotage.

"The production of oil in the southern area is still continuing at full capacity and the oil output from the wells is being transferred to other pipelines," Hormoz Qalavand, executive director of the National Iranian South Oil Company, said.

Brent oil futures pared some of the gains following this statement but were still up $1 at above $108 a barrel at 1200 GMT as traders cited fears of terrorism in a major OPEC producer.

"So far it is not clear if the incident happened due to technical problems or a terrorist act," the semi-official Mehr agency quoted Qalavand as saying.

Khuzestan province in Iran's southwest has occasionally been the scene of violent action by militants. Ten people were sentenced to death in July 2006 in Ahvaz, the capital of Khuzestan.