"According to the final agreement, China will invest $2.5 billion in the field," Mehr quoted Naji Saadouni, president of Iran's Petroleum Engineering and Development Company (PEDEC), as saying.

The output of the field, currently 55,000 barrels per day (bpd), is expected to reach 320,000 bpd upon completion of the first phase of development, which has already started.

A second phase will boost output to 600,000 bpd.

Saadouni did not specify which Chinese company would undertake the development.

In 2009, the China National Petroleum Corporation (CNPC) and the National Iranian Oil Company (NIOC) signed a $1.76 billion deal to develop the neighbouring North Azadegan field, where they hope to extract 75,000 bpd.

Iran says the Azadegan deposit is one of the world's biggest, with reserves of 42 billion barrels. It is known as Majnoon in Iraq, where it is being developed by Anglo-Dutch giant Shell and Malaysia's Petronas.

Chinese oil major, Sinopec, is developing the Yadavaran deposit, which neighbours Azadegan on the Iraqi border in southeast Iran.

Japanese firm Inpex, which first won the tender, withdrew after the international community slapped sanctions on the Islamic republic over its controversial nuclear programme.

Since then, China has filled the vacuum to become a key economic partner to Iran, which produces an average of 3.7 million bpd, according to data from the Organisation of Petroleum-Exporting Countries (OPEC).

Iran's capacity is around 4.1 million bpd.

Iran has OPEC's second-highest oil output, and ranks second in the world in terms of natural gas reserves after Russia.