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"The IPC confirm that Golbarnezhad, 48, was involved in a crash at around 1040 on the first section of the Grumari loop, a mountainous stretch of the course," the International Paralympic Committee said.
"The athlete received treatment at the scene and was in the process of being taken to the athlete hospital when he suffered a cardiac arrest.
"The ambulance diverted to the nearby Unimed Rio Hospital in Barra da Tijuca where he passed away soon after arrival."
An investigation into the accident has been launched.
It was Golbarnezhad's second race at the Games. He finished 14th in the C4 time trial on Wednesday.
The cyclist took up the sport in 2002 and also participated at the London 2012 Paralympics.
"He was an exemplary Paralympic sportsman who, with love and energy, tried his best to promote the name of Iran and to make all of us proud and at the end he gave his life for this," said Golbarnezhad's national Paralympic Committee.
"All members of the Iranian cultural and sports camp here express condolences to his family and the Iranian nation. The name of Bahman Golbarnezhad will be inscribed in the proud history of Iranian Paralympics."
The Iranian flag has been lowered to half-mast in the Athletes Village.
The Paralympic flag will also be flown at half-mast in the village and at the Riocentro venue where Iran play Bosnia in the sitting volleyball final on Sunday.
"This is truly heart-breaking news and the thoughts and condolences of the whole Paralympic movement are with Bahman’s family, friends and team mates as well as the whole of the National Paralympic Committee of Iran," said IPC president Philip Craven.
"The Paralympic family is united in grief at this horrendous tragedy which casts a shadow over what has been a great Paralympic Games here in Rio."
A moment of silence will be held during the closing ceremony, said the IPC.