"The bill to remove four zeros from the national currency was approved by lawmakers," Iran's Students News Agency ISNA reported. The bill needs to be approved by the clerical body that vets legislation before it takes effect.
Iran's state TV said the Central Bank of Iran will have two years to "pave the ground to change the currency to Toman".
The idea of removing four zeros has been floated since 2008, but gained strength after 2018, when US President Donald Trump exited Iran's 2015 nuclear deal and reimposed sanctions, as the rial lost more than 60% of its value.
The Iranian currency was trading at about 156,000 rials per dollar on the unofficial market on Monday, according to foreign exchange websites.