At least 225 Iranians have been hospitalised due to the extreme heat since Friday, the national emergency service said, while officials reported record energy consumption.
"Banks and other public institutions will be closed on Sunday in order to protect people's health and conserve energy," said a government statement shared by official news agency IRNA.
It noted that "emergency and relief agencies are excluded" from the nationwide shutdown.
Public sector working hours were already halved on Saturday, the first day of the week in Iran.
Babak Yektaparast, spokesman for Iran's emergency service, recommended people to stay indoors between 11:00 am and 5:00 pm.
On Saturday, the government set the opening time for banks and other state institutions at 6:00 am to allow people to complete errands before temperatures soared.
Working hours on Saturday were cut in half, helping to save 1,000 megawatts of electricity, IRNA reported.
Iranian officials said on Thursday that electricity consumption had hit an all-time high with more than 79,000 megawatts.
The heatwave has blanketed Iran, pushing the temperature well above 40 degrees Celsius (104 Fahrenheit) in the capital Tehran.
In the southwestern city of Dalgan, in Sistan-Baluchistan province, the mercury hit 50C, according to Tasnim news agency.
Tasnim said at least 10 out Iran's 31 provinces experienced temperatures above 45C since Friday.
According to IRNA, the heatwave is expected to continue over the next four days, though temperatures are forecast to ease gradually beginning Monday.
Globally, last Monday was the hottest day recorded since measurements began in 1940, the European Union's Copernicus Earth observation programme said.
Scientists have linked climate change to more prolonged, stronger and more frequent extreme weather, including heatwaves.
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