The election was considered too close to predict. First results were expected early Saturday.
The first round winner, Ayatollah Hashemi Rafsanjani, had strong support from progressive and business groups. His surprise opponent, Tehran's hard-line mayor Mahoud Ahmadinejad, was backed by Iran's impoverished classes and powerful forces opposed to relaxing Iran's Islamic regime.
"This is the beginning of a new movement," Ahmadinejad declared after casting his ballot.
Early turnout appeared strong. About 63 percent of Iran's nearly 47 million voters cast ballots in the first round.
Election overseers warned the elite Revolutionary Guards and its vigilante wings, both key Ahmadinejad followers, to stay clear of polling sites following accusations of intimidation and other abuses in last Friday's balloting.
The two rivals represent a distinct vision and voice for a nation struggling to find its priorities. The race also exposed the estrangement between those who feel empowered and those who feel embittered by Western-friendly reforms that began in the late 1990s.
Right behind was Ahmadinejad with about 19.5 percent, forcing Iran's first presidential runoff as no candidate got a majority.
The Interior Ministry's election supervisor, Mojtaba Rashad, called on the judiciary Thursday to ban members of the Revolutionary Guards and paramilitary Basij forces from acting as observers at polling stations. It was not immediately clear if authorities would comply.
At least 26 people, including a military figure, have been arrested for suspected electoral violations in last week's vote, the state-run Islamic Republic News Agency reported.
This week's brief campaign was all about attracting voters from the defeated first-round candidates, who ranged from reformers to staunch conservatives.
Rafsanjani only had to sit back and collect support. Political factions and other groups flocked to his side in fear that a Ahmadinejad victory would push Iran back toward the rigid system of the 1979 Islamic revolution.
Rafsanjani was Khatami's predecessor, serving as president from 1989-97. He then became a key adviser to the ruling theocracy, which holds near-absolute power over any elected official, including the president.
He is also the head of a family conglomerate that has an airline, the contract to expand Tehran's subway, and the bulk of the nation's $400 million pistachio export business.
He is seen as one of the few leaders with the background and authority to challenge Supreme Leader Ayatollah Ali Khamenei and his hand-picked inner circle. Rafsanjani also portrays himself as the best hand to guide the sensitive nuclear talks with the West.
Washington claims Iran's nuclear power program is a cover for building atomic bombs. Iran denies this.
"Rafsanjani can manage the important issues of Iran, especially the nuclear story, in a moderate way," said Reza Khatibi, 47, a bookstore owner. "If he's not elected, I will leave this country. It will be so dangerous."
Ahmadinejad, 49, draws indirect strength from Rafsanjani's power. In a campaign video broadcast Wednesday, he contrasted his humble populist style with shots of the villa of a previous mayor.
It is a message that resonates strongly in a nation of vast stretches of poverty, despite its oil and gas riches. Ahmadinejad, a former Revolutionary Guards commander, urges a return to the values of sacrifice and common purpose that were espoused after the revolution toppled the U.S.-backed monarchy and the 1980-88 war with Iraq.
His list of promises targets Iran's underclass: higher wages, more development funds for rural areas, expanded health insurance and more social benefits for women.
He also tried to soften his image in his TV pitch on Wednesday, saying "I am against extremism."
Critics are not convinced. They believe he will stifle the lifestyle reforms and could even clamp down on economic engines, such as the stock market and banks.
For the nuclear talks, Ahmadinejad is expected to introduce a new team that could include some of Iran's most anti-Western clerics.
Ahmadinejad told a news conference last week he could not foresee improved ties with any country that "seeks hostility" against Iran, a clear reference to the United States.
By Brian Murphy