Iran's air defense units fired a missile over the Natanz nuclear facility in central Isfahan province on Saturday to test the rapid missile defense system, officials said.
The explosion took place at around 9 p.m., creating panic and fear amid conflicting reports in local media.
Nour News, a news agency affiliated with the country's top security body, said the explosion was the result of defensive missile fired into the sky "with the aim of testing rapid response to a possible attack."
Security officials, speaking to state TV, said the incident was due to the "controlled explosion" of a missile fired by the air defense system.
The incident took place in Badroud area of Natanz city in central Isfahan province, around 20 km from the country's top nuclear facility, which has seen many sabotage attacks in the past.
The commander of air defense in Natanz was quoted as saying by the state media that a missile was fired to "assess the readiness" of air defense systems, adding that there is "nothing to worry about."
He said such exercises are done in a "completely secure atmosphere and in full coordination with the integrated defense network aiming to evaluate systems."
It comes amid heightened tensions between Iran and the West over the nuclear deal stalemate. The latest round of talks in Vienna was adjourned on Friday with no significant breakthrough.
The parties to the 2015 nuclear deal are expected to reconvene next week to discuss Iran's two draft proposals about sanctions removal and nuclear commitments.
US officials have warned of exploring "other options" if the talks in Vienna fail to produce an outcome.
On the other hand, Israeli officials have called on world powers to immediately halt nuclear talks with Iran, alleging that Tehran has ramped up its nuclear enrichment.
Iran has on many occasions in the past accused Israel of carrying out sabotage acts at its nuclear facilities, including Natanz, and killing its top nuclear scientists.