Team Melli lost to the Asian powerhouse 22-20 at the Shaikh Saad Al-Abdullah Sports Hall Complex in Kuwait City.
Iran, who had defeated New Zealand 53-21 (22-11) in Group A in its opening match, advanced to the next stage as the second-placed team.
The 2020 Asian Men's Handball Championship is the 19th edition of the championship held under the aegis of Asian Handball Federation at Kuwait City, Kuwait from 16 to 27 January 2020.
The competition serves as the Asian qualifying tournament for the 2021 World Men's Handball Championship.