The prevalence of iron deficiency anemia (IDA) remains high in infants, resulting in growth retardation, neurodevelopmental impairment, immunodeficiency and other irreversible injuries. Efficient and safe iron supplementation for infants has been the goal of recent research. This study aims to investigate the effect of encapsulated ferric pyrophosphate (FePP) on intestinal inflammation and gut microbiota in IDA suckling rats. Newborn Sprague-Dawley rats were gavaged with low and high doses of FePP and FeSO4 (2 and 10 mg Fe/kg BW, respectively) during postnatal days 2–14, while the Ctrl group was gavaged with saline. Results showed that FePP supplementation was as effective as FeSO4 in promoting growth, alleviating anemia and restoring body iron levels. Both low and high doses of FePP could significantly down-regulate the expression of proinflammatory cytokines in the colon to the level similar to that in the Ctrl group (P > 0.05). However, the high dose of FeSO4 did not show a down-regulation effect. Compared with the Ctrl group, IDA caused a disturbance of gut microbiota composition in suckling rats, and FePP could restore this dysbiosis. Besides, FePP was more beneficial than FeSO4 in increasing the abundance of beneficial bacteria such as Bacteroides and Akkermansia. Spearman’s correlation analysis showed a correlation between gut microbiota and biochemical indicators such as iron status, pro-inflammatory cytokine expression, and oxidative stress level. Overall, these findings suggested that FePP could effectively improve IDA, and is more effective than FeSO4 in alleviating intestinal inflammation and regulating gut microbiota, which provides a basis for the application of new iron fortificant in infant formula.