The US head of detainee operations in Iraq, Major-General Geoffrey Miller, told the Mujahideen Khalq Organisation (MKO) its members held at a base in eastern Iraq had been recognised as "protected persons under the Fourth Geneva Convention", in a statement.
The decision will allow detainees from the group access to the International Committee of the Red Cross and the UN refugee agency, the UNHCR.
"(This is a) triumph for the Iranian Resistance and the Iranian people," Maryam Rajavi, head of the National Council of Resistance of Iran (NCRI), said in a statement.
NCRI was established in 1981 when former Iranian PM Abu al-Hassan Bani Sadr was dismissed and made his way to France, to meet Masoud Rajavi (husband of Maryam Rajavi), leader of MKO.
MKO was granted bases in Iraq in 1986, and was allowed to establish militias dedicated to back up Iraqi forces in the then ongoing Iran-Iraq war.
Miriam Rajavi: It is a triumph for
the Iranian resistance
Iraq harboured MKO as a retaliation to Iran's fostering of the Iraqi armed opposition group, the Badr Brigades the armed wing of the Supreme Council for Islamic Revolution in Iraq (SCIRI) led by Abd al-Aziz al-Hakim.
The MKO, which has previously been branded a terrorist group by the United States and Europe, is the military affiliate of the NCRI, whose headquarters are near Paris.
Iran regards the roughly 3,800 MKO fighters in Iraq as one of its biggest external threats and wants the group's members to be handed over.
Diplomats say Tehran has offered to exchange some al-Qaida prisoners it is holding for MKO leaders. Washington has refused the swap, the diplomats say.
Iranian government spokesman Abdollah Ramazanzadeh said the US move to grant the MKO protected status undermined Washington's claims to be fighting "terrorist groups".
"I hope those who claim they are combating terrorism prove the truth and confront the ones who have committed extensive crimes against the Iranian nation," he told a weekly news conference.
In August last year, the United States closed the Washington offices of the NCRI and MKO after determining that they were linked.
France too has been suspicious of the organisation. Following the takeover of the Iraq-based Mujahideen's military camps by US forces there, French intelligence suspected the group of planning to make its Paris base a centre from which to
launch attacks on Iranian embassies in Europe.
"We hope the ones who accuse others of supporting terrorism act honestly themselves"
Abdollah Ramazanzadeh, spokesman for Iranian government
The group denies any such ambition. Rajavi spent several weeks in a French prison last summer after being detained under a French terrorism probe. She proclaimed her innocence and was later released on bail pending further investigation.
The Iranian government gave a cautious warning to the United States on Monday, for granting the main Iranian armed opposition a protected status in Iraq.
"I have no information about the truth of such a thing," Iranian government spokesman Abdollah Ramazanzadeh told reporters, the day after its public enemy number one boasted it was now immune from being handed over to Iran.
But even though Ramazanzadeh said the "hypocrites" - as the Mujahedeen Khalq are referred to by the Iranian government - have "never told the truth", he did warn Washington against making any concessions towards the group.
"The attitude towards the hypocrites in Iraq will show the truth of the claims from anybody who claims to be fighting terrorism globally," he said.
"We hope the ones who accuse others of supporting terrorism act honestly themselves," he added, a clear reference to fresh US allegations of an Iranian link to the al-Qaida network.
Iran has been pushing for repatriation of the several thousand Mujahedeen fighters under US military guard at Camp Ashraf northeast of Baghdad, and last December Iraq's US-installed interim leadership voted unanimously to expel them.