The report in today's edition of Hamshahri, a daily affiliated with the municipality, says the council decided to name the street Rachel Aliene Corrie.
The pro-Palestinian activist from Washington state was trying to prevent what she and other activists believed was a military push to demolish nearby Palestinian homes. Iran does not recognise Israel.
The decision marks the first time since the 1979 Islamic Revolution that an Iranian street has been named after a US national.
Before the revolution, at least three main Tehran streets were named after former US presidents.
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