We report the magnetic and electronic properties of the bilayer ruthenate Sr$_3$Ru$_2$O$_7$ upon Fe substitution for Ru. We find that Sr$_3$(Ru$_{1-x}$Fe$_x$)$_2$O$_7$ shows a spin-glass-like phase below 4 K for $x$ = 0.01 and commensurate E-type antiferromagnetically ordered insulating ground state characterized by the propagation vector $q_c$ = (0.25 0.25 0) for $x$ $geq$ 0.03, respectively, in contrast to the paramagnetic metallic state in the parent compound with strong spin fluctuations occurring at wave vectors $q$ = (0.09 0 0) and (0.25 0 0). The observed antiferromagnetic ordering is quasi-two-dimensional with very short correlation length along the $c$ axis, a feature similar to the Mn-doped Sr$_3$Ru$_2$O$_7$. Our results suggest that this ordered ground state is associated with the intrinsic magnetic instability in the pristine compound, which can be readily tipped by the local magnetic coupling between the 3$d$ orbitals of the magnetic dopants and Ru 4$d$ orbitals.