The two teams played out a 1-1 draw at the end of extra time at Abdullah bin Khalifa Stadium in Doha, Qatar.
Goals from the spot from Mehdi Taremi and Omar Khrbin either side of the halftime break meant the two sides were level after 90 minutes and there was nothing to separate them after extra time before Alireza Beiranvand helped his side settle the tie on penalties.
Iran suffered a big blow in added time of the second half when Taremi was sent off for a second bookable offence, leaving his side with 10 men going into the 30 minutes of extra time.
Two periods of intense action in the middle of the pitch with clear cut chances in sparse supply saw the two teams head into the penalty shootout at the end of 120 minutes.
Karim Ansarifard, Ramin Rezaeian, Omid Ebrahimi, Mehdi Torabi and Ehsan Hajsafi scored for Iran, while Beiranvand’s save from Fahd Youssef was the decisive moment, earning Team Melli a place in the AFC Asian Cup quarter-finals for the eighth time in a row.
Iran will meet Japan on Saturday in the quarter-finals.