World Bulletin / News Desk
A mortar shell struck the building south of Sanaa, triggering fire at the premises, the source said on condition of anonymity because he was unauthorized to speak to media.
Billows of smoke were still rising from the building amid ongoing clashes in the area.
It is not yet clear which party was behind the attack on the Iranian embassy.
Houthi rebels and Saleh’s forces have been battling in recent days for control in Sanaa, which they jointly overran in 2014.
Last week, Saleh said he was open to talks with the Saudi-led coalition fighting the Houthis to end the three-year conflict in Yemen.
The conflict has since claimed more than 10,000 lives and triggered what the United Nations has described as the world's worst humanitarian crisis.