The bounty has been put up by the Students' Justice-Seeking movement, which last week staged a sit-in at Tehran's Mehrabad airport demanding to be sent to Gaza as pro-Palestinian volunteers.
The group has labelled Mubarak an "international terrorist" and accuses him of collaborating with Israel by failing to open the Egypt-Gaza frontier at Rafah for humanitarian purposes. It also alleges that the Egyptian government has allowed Israeli planes to use the country's airspace to carry out raids.
Organisers distributed posters showing Mubarak with a fake bullet-hole in his forehead and scissor marks through his neck. The posters carry a proclamation in English offering a "$1,500,000 award for executing Mubarak" and an Arabic message from the Qur'an declaring: "Accursed, they will be seized wherever found and slain with a slaughter."
Iran's foreign ministry has dismissed the offer as not reflecting government policy after Egyptian officials called for its organisers to be prosecuted.
The students responded by increasing the reward from the original $1m sum. Money will be raised, they say, from the distribution of a documentary celebrating the 1981 assassination of Mubarak's predecessor, Anwar Sadat, who was killed by Islamists outraged by his signing the Camp David peace accords with Israel. Some students have also volunteered to sell their kidneys.
The issue threatens to further complicate attempts at restoring Iran-Egypt relations. Tehran severed diplomatic ties after Egypt sheltered the shah when he was toppled in the 1979 Islamic revolution.
Recent efforts to renew links have foundered partly on Egypt's insistence that Iran rename a street in Tehran honouring Sadat's assassin, Khaled Islambouli.
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