A statement signed by 220 members of parliament and 85 House of Lords members called for Iran's main opposition group, the People's Mujahidin, to be removed from a US list of terrorist organisations.
"The world now knows that the PMOI (People's Mujahedeen) is an essential part of the drive to halt the advance of fundamentalism in Iraq and the region," said the statement which was released on Thursday.
"This underlines the need to remove the terrorist tag from the PMOI and hang it around the neck of the terrorist mullahs' regime in Tehran, which is also guilty of mass violations of human rights
"Thus it is important to recognise the presence of the PMOI in Iraq as an independent political movement."
The US-installed interim Governing Council (IGC) in Iraq announced on 9 December that it planned to deport the People's Mujahidin group.
The US administrator in Iraq, Paul Bremer, has said that members of the People's Mujahidin in US custody would not be sent to Iran for trial, as demanded by Tehran, but to third countries.
"The world now knows that the PMOI (People's Mujahedeen) is an essential part of the drive to halt the advance of fundamentalism in Iraq and the region... This underlines the need to remove the terrorist tag from the PMOI and hang it around the neck of the terrorist mullahs' regime in Tehran, which is also guilty of mass violations of human rights"
British politicians' statement
"As clearly stated by experts in international law, Iraq is a country under occupation and therefore the status of the PMOI in Iraq is governed by international law, and not the IGC," the British politicians said.
The People's Mujahidin mounted attacks inside Iran from neighbouring Iraq when Saddam Hussein was in power, but surrendered to the coalition in May, when US troops disarmed more than 3800 of them.
They are now guarded by US troops at their base in Camp Ashraf, northeast of the Iraqi capital.
But the British parliamentarians said there were "scores" of British, European and US citizens among the PMOI in Iraq that could face extradition to Iran.
"There is no doubt whatsoever that if that were to happen, we would be condemning those hundreds in Iraq to immediate torture and death," MP Win Griffiths, of Britain's ruling Labour Party, said.
But a spokesman for the Iranian embassy in London said repentant rebels would be allowed to return to their families, but their leaders would face trial on terrorist charges.
Muhammad Eskandari said: "They have shed much innocent blood. They have killed at least 3000 Iranians. They have killed even Americans in the past. They are a terrorist group."
The People's Mujahidin helped overthrow the US-backed Shah during Iran's 1979 Islamic revolution, but then fell out with the dominant party of Ayat Allah Ruhollah Khomeini.
"They have shed much innocent blood. They have killed at least 3000 Iranians. They have killed even Americans in the past. They are a terrorist group"
Iranian embassy, London
The group has attracted some disaffected Iranian exiles, but its attempts to stir up revolt against the Islamic Republic have fallen on deaf ears inside Iran where it has little or no support.
The opposition group was a well-armed fighting force that, with backing from Saddam, continued a guerrilla insurgency against the Islamic government in Tehran from 1988 onwards.
Both the United States and Iran consider it a terror organisation because its attacks have often killed civilians.
The United States also banned the group's political wing, headed by husband and wife Masud and Maryam Rajavi, and froze its bank accounts.
But despite the group's violent tactics, its strong stand against Iran and pro-democratic rhetoric have won it support among some US and European lawmakers.