But the manager of the restaurant, called Halal KFC, said it had nothing to do with the US company.
Police justified the decision saying it was operating under a false license.
The closure comes amid concerns amongst hardliners about growing Western influence in Iran as relations with a number of countries improve.
"The shutting down of Halal KFC was due to a misunderstanding," Abbas Pazuki, the manager of Halal KFC, told the Tasnim News Agency.
"We are part of a brand known as Halal KFC, which comes from Turkey. It belongs to Muslims and its target market is Muslim nations," said Pazuki.
He said the Turkish brand was a "rival of the American KFC".
Earlier reports suggested the authorities closed down the first branch in Teheran of the better known KFC.
Ali Fazeli, head of the Iranian chamber of commerce, confirmed that the Iranian KFC has no connection with KFC in the US, according to ILNA press agency.
"In accordance with orders from the Supreme Leader, we do not give any authorisation to Western brands" in the fast food sector, Fazeli said.
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