Iran lost to Tahiti 5-4 in a closely-fought in Espinho, Portugal. Tahiti will meet Italy in the semifinal.
Tahiti qualified for the last-eight as unbeaten leader in Group D, including a win over current champion Russia, while Iran finished second to Brazil in Group C.
The two sides had never played each other in an official competition.
Having finished fourth when they hosted the FIFA Beach Soccer World Cup two years ago, Tahiti cemented its status as one of the top teams in the world as they reached another semi-final.