"There was a mistake, the previous number was the number of dead and injured together," state television reported Red Crescent official Majid Shalviri as saying.
An earthquake measuring 6.3 on the Richter scale razed dozens of villages in north Iran's Qazvin province on Saturday.
Witnesses reported seeing more than 100 bodies in one village alone as well as dozens more in other villages
Helicopters and rescue teams continued searching for survivors in the grape-growing area around the epicentre Avaj, 130 miles due west of the capital Tehran but far further by road.
The quake struck in the early morning, just before 7:30 a.m., killing many women, children and elderly at home while men were out working in the fields and vineyards.
Villagers in Esmailabad, north of Avaj, recovered 38 bodies -- one in nine of the population -- and picked through the dusty ruins to look for more of the missing, feared trapped among the wooden roof joists that jutted into the air.
Most of the homes in these areas are built from brick and mud, making them susceptible to quakes which shake the remote, seismically active area regularly.
Images of wailing quake survivors beating their heads and faces while grieving over bodies of loved ones were aired on state-run television. A leveled village was also shown, with just a handful of homes left standing.
Mohsen, 12, is now alone -- his three sisters, brother, mother, father and grandmother all died but he had set out for school. Wide-eyed, silent and shaking, he stood before the tangled rubble of his home nestled in the fertile mountains.
"I've lost everyone," another man wailed as he poured earth over his head.
Women squatted in the dust, crying out as they rocked back and forth. A Muslim cleric read a prayer for the dead laid out in the village square before relatives buried them on a hill.
IRNA said some 60 villages around Avaj had been razed to the ground or lost at least half of their buildings, with a pair of early strong aftershocks inflicting more damage.
A medical official in Qazvin, the regional center, said 206 dead had been taken to one hospital in the city and 170 to another.
The town's Red Crescent head, Majid Shalviri, told IRNA more than 500 people were now confirmed dead in the natural disaster.
Ambulances screamed along the road to Qazvin, delivering more dead and wounded to hospitals from which patients able to move were discharged to make room.
A town of 3,600 people, Avaj is close to the top of a high pass through rugged mountains, with the nearest peak towering 2,860 meters above. Its hospital was overwhelmed.
"We have 100 beds in the hospital, but they keep bringing more people every minute, but we can't handle any more," an official there told Reuters.
Most houses in the region, famed for seedless grapes that grow on the mountainsides, are single-storey and made of mud brick which experts say does not stand up well to quakes.
Usually with this kind of building we lose a lot of people," Professor Fariborz Nateghi, a government advisor on earthquake engineering, told Reuters.
"You lose the walls and the ceiling collapses...They are major killers."
President Mohammad Khatami sent a message of condolence.
He told Interior Minister Abdolvahed Mousavi-Lari to personally take charge of the "grave responsibilities, which the government and the nation have in this tragic event," IRNA said.
Earthquakes are a regular occurrence in Iran, which is crossed by several major faultlines, but rarer in this region.
On May 10, 1997, a tremor measuring 7.1 on the Richter scale killed 1,560 people in eastern Iran near the Afghan border.
In 1963, a deadly earthquake hit the same area, killing more than 12,200 people and demolishing 124 villages.
Qazvin, like Tehran, sits in the foothills of the Alborz mountain range, which skirts the south coast of the Caspian Sea.
Experts say earthquakes here are infrequent, but that means pressure in the faultlines builds up, giving them extra force.
In Esmailabad, Maryam, a teenager, was lucky to survive. Her mother, sister and sister's two children were crushed to death.
"The ground started to shake and we wanted to run away but we couldn't," she said. "They found me because my hand was sticking out of the rubble and pulled me out."
One man and his wife fled their home just in time.
"We threw ourselves outside," the man said, "and saw that instead of a village there was just dust."