The European Union is set to strike an exiled Iranian opposition movement off its list of banned terrorist groups, a step likely to anger the authorities in Tehran.

At a meeting on Monday, EU foreign ministers are poised to remove the People’s Mojahedin Organisation of Iran (PMOI) from the 27-nation bloc’s blacklist, in order to comply with two EU court rulings issued last month.

The PMOI, founded in 1965, advocates the overthrow of Iran’s Islamic republic and was designated a terrorist group in 2002, when the EU drew up its blacklist after the September 2001 attacks on the US.

Since then, the PMOI has fought a long battle in European courts to clear its name, shadowing Iranian government representatives who have done their best to persuade EU member-states that it would be extremely unwise to take the group off the terror list.

The US government named PMOI as a terrorist organisation in 1997 and has kept it on its list ever since. But in Europe, the group’s restoration to legal respectability could hardly occur at a more sensitive time.

It would risk complicating western countries’ relations with Iran just when the administration of Barack Obama, the new US president, is expected to consider making discreet approaches to Tehran as a way of containing its nuclear ambitions and reshaping its policies towards Israel, Lebanon and Iraq.

Over recent years, EU governments have chosen to keep the PMOI on their blacklist partly as a favour to Iran, in return for which a channel has remained open for diplomatic contacts over the nuclear problem.

The US, EU and Israel suspect Iran of using its uranium enrichment programme to develop nuclear weapons and are fearful that the first Iranian device may be ready in three years or less. Iran rejects attempts to curtail its programme as “nuclear apartheid” and says it has every right to exploit nuclear energy for peaceful purposes.

Some EU countries, especially France, have been reluctant to remove the PMOI from the EU’s blacklist on the grounds that such a decision will infuriate Iran’s leaders and reduce the EU’s ability to influence Tehran’s behaviour.

But the EU’s hand was forced last month when the European Court of First Instance, a Luxembourg-based court that forms part of the EU’s judicial system, ruled on December 4 that EU governments had been wrong to freeze the PMOI’s funds.

Two weeks later, the court rejected as “manifestly inadmissible” an attempt by EU governments to delay implementation of the December 4 judgement.

As a result, ambassadors of the 27 member-states agreed in Brussels on Thursday that the next update of the EU’s terrorism blacklist should not include the PMOI. It would be the first time any organisation had been struck from the list.

The envoys forwarded their recommendation to Monday’s foreign ministers’ meeting, whose agenda lists it as an “A-point” – that is, an item set to be approved without debate.

However, some diplomats cautioned that, given the serious implications for the EU’s relations with Iran, some discussion might still take place. “A-points may become B-points. We’ve been there before,” one EU diplomat said.