(EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to report, film or take pictures in Tehran.)
By Hashem Kalantari and Fredrik Dahl
TEHRAN (Reuters) - Defeated candidate Mirhossein Mousavi urged supporters to stage peaceful protests or gather in mosques to mourn those killed after a disputed presidential poll set off Iran's worst unrest since the 1979 Islamic Revolution.
Hardline President Mahmoud Ahmadinejad's victory against the reformist Mousavi sparked demonstrations and bloody street battles in Tehran which killed at least seven people Monday while other protests flared up in cities across Iran.
"A number of our countrymen were wounded or martyred," Mousavi said, calling a day of mourning for Thursday.
"I ask the people to express their solidarity with the families ... by coming together in mosques or taking part in peaceful demonstrations," Mousavi said on his website.
Bloodshed, mass protests, arrests and a media crackdown have focussed world attention on the fifth-biggest oil exporter which is locked in a nuclear row with the West. Mousavi's statement did not refer to a protest called for Wednesday.
The political earthquake set off by Friday's vote prompted President Barack Obama, who had urged the Iranian leadership to "unclench its fist," to say the upheaval showed that "Iranian people are not convinced with the legitimacy of the election."
Major Western nations have questioned the result's fairness.
Discord within Iran's ruling system has never been so public. The Mousavi camp is backed by traditional establishment figures, such as former presidents Akbar Hashemi Rafsanjani and Mohammad Khatami, concerned about how Ahmadinejad's truculent foreign policy and populist economics are shaping Iran's future.
Further protests planned for Wednesday and Thursday are a direct challenge to the authorities who have kept a tight grip on dissent since the U.S.-backed shah was overthrown in 1979 after months of protest.
In a stark warning, Fars News Agency quoted Interior Minister Sadeq Mahsouli as saying "no permission has been issued for a gathering or rally in Haft-e Tir Square" Wednesday.
State television has said the "main agents" behind the turmoil have been arrested with guns and explosives.
ARRESTS, DEATH PENALTY
Security forces arrested a pro-reform activist and an editor Wednesday while a provincial prosecutor warned that those causing unrest faced the death penalty. An official inquiry was launched into an attack on university students.
Tens of thousands of pro-Mousavi supporters defied authorities to rally in Tehran Tuesday after the seven were killed in Monday's violence but international media were forbidden from leaving their offices to cover the event.
German Chancellor Angela Merkel's spokesman urged the Iranian government Wednesday to respect free speech and to put an end to restrictions on news converage.
After Monday's deaths, Mousavi had asked followers to call off a planned rally in the same downtown area Tuesday so the marchers headed north instead. Some said there would be another rally at Tehran's central Haft-e Tir Square Wednesday.
Tuesday's rally was addressed by Faezeh Rafsanjani, daughter of the former president who backed Mousavi. Her public support was another sign of high-level rifts in the Islamic Republic. Hardline students called for her to be arrested for incitement.
Pro-Mousavi protests have been reported in the cities of Rasht, Orumiyeh, Zanjan, Zahedan, Tabriz and Mashhad.
Mohammadreza Habibi, prosecutor-general in Isfahan province, said: "We warn the few ... controlled by foreigners who try to disrupt domestic security by inciting individuals to destroy and to commit arson that the Islamic penal code for such individuals waging war against God is execution."
A reformist source said Saeed Laylaz, editor of business daily Sarmayeh, and activist Mohammadreza Jalaiepour were both arrested Wednesday.
"I condemn widespread arrests of children of the revolution and (the arrests) will motivate people more to continue and expand protests," Mousavi said.
After Iran's influential speaker of parliament Ali Larijani condemned violence at Tehran University, Iran's Interior Ministry ordered an investigation into the attack which students blamed on the Islamic Basij militia and police.
One student activist who declined to be named told Reuters Tuesday that four students were killed during the violence. Tehran University denied anyone had been killed.
Supreme Leader Ayatollah Ali Khamenei, Iran's highest authority who has favoured Ahmadinejad, has called for calm, allowing some ballot boxes to be recounted.
But Iran's top legislative body, the Guardian Council, ruled out reformists' demands for an annulment of the vote.
Mousavi also urged the nation to be calm. "Therefore those rioters who damaged public property and create tension in the society are not part of us," he said.
French Foreign Minister Bernard Kouchner said: "We do not want to intervene directly and we are not doing that. But indignation, the need to support democrats, the need to support reformists -- that, we affirm loud and clear."
Violent scenes of police beating Mousavi supporters taken on mobile phones were broadcast in the West on news bulletins. In Iran, mobile phone text services have been down since the election. There is no access to Facebook, Twitter, or YouTube.
Iran's Foreign Ministry summoned the Swiss ambassador, who represents U.S. interests in Tehran, Wednesday to protest at "interventionist" U.S. statements on Iran's election.
Obama told CNBC there appeared to be little difference in policy between Ahmadinejad and Mousavi. "Either way we are going to be dealing with an Iranian regime that has historically been hostile to the United States," he said.
The United States and its European allies have found Ahmadinejad implacable in asserting Iran's right to enrich uranium, a program that Iran says is purely peaceful but that they fear could be used to make a nuclear bomb.
The United States severed diplomatic relations with Iran in 1980, after the 1979 Islamic revolution during which Iranian students occupied the U.S. Embassy in Tehran and ultimately held 52 U.S. citizens hostage for 444 days. Ahmadinejad indicated Sunday that there would be no change in nuclear policy during his second term, saying the issue "belongs in the past."
(Additional reporting by Parisa Hafezi, Hashem Kalantari and Hossein Jaseb in Tehran; Writing by Peter Millership; Editing by Giles Elgood)
