Secretary of State Hillary Clinton announced Friday that Mujahedeen Khalq, or MEK, would be taken off a list of designated terrorist organizations to which the group was added in 1997, The New York Times reported.
The decision was supported by a large number of Washington notables, including two former directors of the CIA, the former director of the FBI and a former attorney general.
The group was disarmed when the United States invaded Iraq in 2003, but was seen as a democratic alternative should the current theocracy in Iran end.
The group considers itself in danger because of the Iraqi government's close ties to Iran. It recently cooperated in helping relocate more than 3,000 of its members from their longtime location at Camp Ashraf to Camp Liberty, near Baghdad.
The National Iranian American Council had opposed the delisting, charging the decision "opens the door to congressional funding of the MEK to conduct terrorist attacks in Iran."
An expert on Iran at the Carnegie Endowment for International Peace, Karim Sadjadpour, doubted the delisting would have much impact on U.S. relations with Iran.
He said the MEK was "a backward and intolerant cult" with "very limited appeal among Iranians."