The MKO insists that the US should delist it as a terrorist organization, a demand which has been rejected so far by Washington.
An appeals court in the US has ruled that the State Department should review the terror status of the Mujahedin Khalq Organization (MKO).
The MKO had filed a petition against the US blacklisting in 2008.
The Bush administration, however, rejected the request in its final days in 2009, after examining material submitted by the group and US intelligence community, including classified information.
Reuters reported on Friday that a three-judge panel of the US Court of Appeals in Washington said in a 22-page decision on Friday that the US government failed to give the group a fair chance to rebut unclassified information that claimed the group supported terrorist activities.
The government was obligated under a 1996 antiterrorism law and 2004 revisions to give the group the chance to rebut unclassified information, the appeals court said, adding that the group was "permitted access to the unclassified portion of the record only after the decision was final."
In a statement, the State Department said it would study the decision, but added that the US government continues to view the group as a terrorist organization.
The European Union (EU) took MKO off its blacklist in January, 2009.
Following EU’s move to delist the MKO, Washington announced that labeling the outlawed group as a terrorist group was an appropriate act and that the MKO had to remain on the US blacklist.
The Iraq-based group is listed as a terrorist organization by much of the international community and is responsible for numerous acts of terror and violence against Iranian civilians and government officials.
The MKO is also known to have cooperated with Iraq’s notorious dictator Saddam Hussein in suppressing the 1991 uprisings in southern Iraq and the massacre of Iraqi Kurds.