In a statement, the British Parliamentary Committee for Iran Freedom said the continued proscription of the People’s Mujahedeen Organisation of Iran (PMOI) went against a European Court of Justice ruling last December.
The court annulled a European Union decision to freeze the PMOI’s assets but continued to keep the group on its terrorist blacklist, a move condemned by its supporters as unjustified and a concession to the regime in Tehran.
The PMOI was the armed wing of the France-based National Council of Resistance of Iran (NCRI) but renounced violence in June 2001. It was proscribed in March 2001 by Britain’s then-foreign secretary Jack Straw.
Lord Robin Corbett, a member of the governing Labour Party and chairman of the 35-member committee, claimed London persuaded the EU to defy the ruling, which "made a mockery" of the court.
He accused Britain of siding with "the mullahs" and "those who use terror at home and export it abroad" rather than victims to keep open EU channels of dialogue over the Islamic republic’s disputed nuclear programme.
The decision allowed Iran to "keep developing nuclear weapons, keep killing British troops in Iraq, keep arming Hezbollah to try to unseat the elected government in Lebanon and keep arming and training Hamas to try to block any possible Palestine-Israel peace agreement", he added.
Corbett said Foreign Secretary Margaret Beckett should reverse a "wrong and dangerous choice" not to support the PMOI.
"Appeasement can only help the mullahs," he added.
The action is being backed by figures including a former solicitor general and Scotland’s former most senior legal officer, Lord Peter Fraser, who oversaw the investigation into the 1988 bombing of Pan Am flight 103 over the town of Lockerbie.
The group claims there is "no evidence that the PMOI is concerned in terrorism at all."
The appeal has been lodged with the Proscribed Organisations Appeal Commission (POAC) and is expected to be heard later this year. The PMOI has previously appealed to the POAC and London’s High Court.
There was no immediate response from the Home Office.
The PMOI is listed on the Home Office’s website under its Farsi name Mujaheddin e Khalq (MeK).
"The MeK is an Iranian dissident organisation based in Iraq. It claims to be seeking the establishment of a democratic, socialist, Islamic republic in Iran," the website says.