Iraqi officials and the United Nations last year signed an agreement outlining the voluntary relocation of members of the People's Mujahedin of Iran from their enclave in Diyala to Camp Liberty in Baghdad.
U.S. State Department official Daniel Fried said the PMOI enclave at Camp Ashraf was "no longer a viable home" for the estimated 4,000 residents.
"They have no secure future there," he said.
PMOI leaders said hundreds of Camp Ashraf residents were ready to move to the new facility on a voluntary basis. Fried said Camp Liberty, however, was a "temporary transit facility" meant to ensure Camp Ashraf residents can get out of Iraq.
"In short, it is time for the PMOI to make the decision to start the move out of Camp Ashraf to Camp Liberty from where they can begin new lives outside of Iraq," he said. "A peaceful solution, no matter what the circumstances, is the only acceptable solution, but it is time to move forward."
Saddam Hussein used the PMOI as a paramilitary force, though the group surrendered to invading U.S. troops in 2003. The U.S. government lists the group as a terrorist organization, though some European countries have relaxed their stance.
PMOI members, who are considered Iranian dissidents, say they fear attacks from the current Iraqi leadership.