Defeated presidential candidate Mirhossein Mousavi urged supporters to stage protests or gather in mosques to mourn those killed after disputed elections that 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 on Monday while other protests flared up in cities across Iran.

A number of our countrymen were wounded or martyred, Mousavi said in a statement on his website posted on Wednesday.

I ask the people to express their solidarity with the families ... by coming together in mosques or taking part in peaceful demonstrations, said Mousavi, adding that he would also take part in the day of mourning planned for Thursday.

The bloodshed, mass protests over four days, arrests and a media crackdown focused world attention on the fifth-biggest oil exporter which is locked in a nuclear standoff with the West.

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 on Wednesday.

State television has said the main agents behind the turmoil have been arrested with guns and explosives.

Tens of thousands of pro-Mousavi supporters defied authorities to rally in Tehran on Tuesday after the seven were killed in Monday's violence but international media were forbidden from leaving their offices to cover the event.

After Monday's deaths, Mousavi had urged followers to call off a planned rally in the same downtown area on Tuesday so the marchers headed north instead. Some sent messages to meet again on Wednesday for a rally at Tehran's central Haft-e Tir Square.

MORE ARRESTS, DEATH PENALTY

Security forces arrested a pro-reform activist and an editor on 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.

Mohammadreza Habibi, prosecutor-general in the province of Isfahan, 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 on Wednesday morning. Jalaiepour was detained at Tehran's international airport, the source said.

Iran's Interior Ministry ordered an investigation into an attack on university students which they say was carried out by Islamic militia and police. It came a day after Iran's influential speaker of parliament, Ali Larijani, condemned the attack on the dormitory of Tehran University.

One student activist who declined to be named told Reuters on 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 favored Ahmadinejad, has called for calm, allowing some ballot boxes to be recounted. But Iran's top legislative body, the Guardian Council, has ruled out reformists' demands for an annulment of the vote.

Possible problems should be resolved following legal channels, Khamenei said. If removing these problems need recounting of some ballot boxes this should be done with the presence of the candidates' representatives, he said.

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.

French Foreign Minister Bernard Kouchner said on Wednesday that Mousavi's wide support among reformists was evidence of the will to revolt against oppression.

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.

The United States and its European allies have found Ahmadinejad implacable in asserting Iran's right to enrich uranium, a programme that Iran says is purely peaceful but that they fear could be used to make a nuclear bomb.

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 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 on Sunday that there would be no change in nuclear policy during his second term, saying the issue belongs in the past.

Mohamed ElBaradei, director general of the International Atomic Energy Agency, said on Wednesday Iran wants the ability to build nuclear weapons to gain a reputation as a major power in the Middle East.

This is to them the road to get that recognition to power and prestige and ... an insurance policy against what they heard in the past about regime change, axis of evil.

(Additional reporting by Parisa Hafezi, Hashem Kalantari and Hossein Jaseb in Tehran; Writing by Peter Millership; Editing by Giles Elgood)