Police said the man took people hostage at the Department of Assets of Ilam Province’s Mostazafan Foundation on Wednesday morning.
The suspect, who was not identified by name, was reportedly a former employee of the institution who had been fired.
Counter-terror police immediately responded to the scene.
Colonel Farzad Yassemi, a deputy police chief for Ilam Province, said the incident was being investigated.
Meanwhile, some of the wounded are said to be in critical condition.