It comes amid uncertainty about its nuclear deal with world powers after United States president Donald Trump announced he was decertifying the accord.
A surface-to-surface missile was on full display as thousands gathered at the former United States compound, the first time such weaponry has been on display during the annual event. It was the first time Iran displayed a missile during the annual gathering.
Iran also displayed a 2000 km-range ballistic missile during the march. The rally, which commemorates the students who led the takeover of the building on September 3, 1979, also served as a unified denouncement of USA -imposed sanctions on the Islamic Republic.
They gathered at the former embassy where Iranian student revolutionaries climbed over the walls on November 4, 1979, and seized 52 Americans, holding them hostage for 444 days.
"To give in to the Americans makes them more aggressive and insolent".
A crowd chanted "Down with the US" and "Death to Israel" during the anniversary celebration. State TV said similar celebrations were being held in other Iranian cities and towns. Additionally, a senior official accused President Donald Trump of a "crazy" return to confrontation with Tehran.
Iran has paraded its missile capability in recent months in a show of defiance to Trump, whose administration has said Tehran's development of ballistic missiles violates the spirit of the nuclear agreement signed in 2015. Under that deal, most global sanctions on Iran were lifted in exchange for Tehran curbing nuclear activity.
State media reported that when Ali Shamkhani, secretary of the Supreme National Security Council, spoke to a rally in Tehran, he said, "All the governments confirm that the American president is a insane individual who is taking others toward the direction of suicide".
Mr Shamkhani, alluding to Mr Trump's threats against North Korea, said even USA allies know that Mr Trump "has no power to realise his bluffs, against Iran, too".
Hundreds of thousands of Iranian people, mostly school and university students, staged demonstrations on Saturday morning all over the country to express their opposition to the arrogant policies and attitudes of the enemies, particularly the US.