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8 year oldAn inauguration ceremony was held on Sunday by the country's communications and information technology minister, Mahmoud Vaezi.
The state news agency Irna said the initiative would offer "high quality, high speed" connections at "low costs".
But critics suggest the true aim is to tighten the authorities' control over citizens' use of the net.
Although Iran already blocks access to overseas-based social media services - including Twitter, Instagram and Facebook - many users still access them via proxy sites and virtual private networks (VPNs).
The idea behind the project was first made public in 2010, and it was originally intended to be fully operational by 2015.
The government says the goal is to create an isolated domestic intranet that can be used to promote Islamic content and raise digital awareness among the public.
It intends to replace the current system, in which officials seek to limit which parts of the existing internet people have access to via filters - an effort Mr Vaezi described as being "inefficient".
"All domestic activities, services, applications [and] various types of contents... are included in the national internet," he declared at the launch.
The minister added that the initiative would make it easier to combat cyber-threats. At the ceremony, another official said the Information Technology ministry had recently had to combat several distributed denial of service (DDoS) attacks - attempts to overwhelm its computer servers by flooding them with traffic.
According to a report by Mehr, another Tehran-based news agency:
Local reports state that users' privacy will be respected.
But the British human rights campaign group Article 19 has warned that this might not be the case.
"Given Iran's record in violating its human rights commitments based on civil and political (including religious and ethnic) grounds, the development of projects such as the national internet are especially concerning," it said in a report published earlier this year.
"The National Internet Project could pave the way for further isolation, surveillance and information retention.
"[It] risks severely isolating the Iranian people from the rest of the online world, limiting access to information and constraining attempts at collective action and public protest."
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