Ex-parliamentary speaker Gholam Ali Haddad Adel, seen close to supreme leader Ayatollah Ali Khamenei, was not considered a frontrunner for the June 14 election.
"I announce my withdrawal from the presidential race to help promote the conservative victory," Haddad Adel said in a statement carried by local media.
"I hope that the conservatives win in the first round, but if it goes to the second round, the competition will be between two conservatives," he added.
In addition to the conservatives, the poll on Friday -- Iran's first since the disputed re-election of President Mahmoud Ahmadinejad in 2009 -- will also include two moderate candidates and a reformist.
According to local media, negotiations are underway between moderate Hassan Rowhani and reformist Mohammad Reza Aref to join tickets.