The match ended 10-10 in regular time and Iran beat its strong rival 5-4 in penalty shootout.
Iran had defeated Hong Kong 16-2 in its opening match.
Team Melli will play the Philippines on Friday.
Group A consists of China, Uzbekistan, Singapore and Thailand.
The 2023 Asian Water Polo Championship is taking place from March 22 to 27 in Singapore.
It is the Asian continental qualification for the 2023 FINA Men's Water Polo World Cup.