An Iranian exile group attacked in Iraq this month has moved from terrorism lists to international good graces, but Baghdad wants it out over its opposition to Iran's rulers and ties to Saddam Hussein.

On February 9, mortar rounds and rockets slammed into Camp Liberty, a former US military base near Baghdad that now houses some 3,000 members of the People's Mujahedeen Organisation of Iran (PMOI), killing five people, according to Iraqi security officials.

The attack triggered condemnation from the United States and United Nations, but in Iraq officials are eager to see the group depart.

The PMOI's "presence in Iraq is illegal and illegitimate," Ali Mussawi, Prime Minister Nuri al-Maliki's spokesman, told AFP. "Their presence is rejected."

Iraqi political analyst Ihsan al-Shammari said the "nature of the relationship between the (Iraqi) Shiite political powers and Iran," Baghdad's Shiite neighbour to the east with which it has close ties, is a key factor in Iraq's insistence on the PMOI's ouster.

Shammari also noted other factors including the PMOI's links to executed dictator Saddam, under whose rule Iraq's now-empowered Shiite majority was oppressed.

Saddam allowed the PMOI to establish a base called Camp Ashraf northeast of Baghdad after he launched the 1980-88 war with Iran, in which the group fought alongside his forces.

According to the US State Department, Saddam armed the group with "heavy military equipment and deployed thousands of (PMOI) fighters in suicidal, mass wave attacks against Iranian forces" near the end of the war.

Following the 2003 US-led invasion of Iraq, the PMOI turned over "2,000 tanks, armoured personnel carriers, and heavy artillery," the State Department said.

The group was also allegedly involved in Saddam's violent suppression of 1991 Shiite and Kurdish uprisings in Iraq.

"The former regime used (the PMOI) to carry out repression" in Iraq, said Dr Adnan al-Saraj, who has written books about the group.

Saddam gave the PMOI four bases in Iraq, buildings in central Baghdad and other perks including Iraqi passports and free petrol, Saraj said.

Almost all PMOI members in Iraq have moved to Camp Liberty from Camp Ashraf, the last of their bases, as part of a UN-backed process that aims to see them resettled outside the country.

But after this month's attack, the PMOI complained about the slow pace of the process, which has dragged on as few countries have come forward with concrete offers of resettlement.

The PMOI has not taken the move from Camp Ashraf, where some members have lived for decades, quietly, alleging Baghdad is acting at Tehran's behest.

It has also criticised the UN's assertion that the camp meets minimum humanitarian standards and complained about a variety of alleged shortcomings including restrictions on using forklift trucks, which it said amounted to "torture".

While not accepted in Iraq, the PMOI has made strides internationally.

The group, which was founded in the 1960s to oppose the shah of Iran but took up arms against the country's new clerical rulers after the 1979 Islamic revolution, successfully campaigned for its removal from US and EU terrorism lists.

The PMOI said it renounced violence in 2001 after carrying out attacks in Iran and elsewhere for decades. It now issues deluges of statements to the media and has enlisted well-known western politicians and officials as advocates.

The language of the official US condemnation of the attack on Camp Liberty also indicates the progress made by the PMOI, which was listed as a "terrorist organisation" by Washington until last year and by the EU until 2009.

The US State Department condemned it as a "terrorist attack," and also referred to the attack as a "tragedy".

Although the PMOI has gained international acceptance, Karim Sadjadpour, an Iran expert and senior associate with the Carnegie Endowment for International Peace, said the same is not true within Iran.

"They're widely viewed as a backward and intolerant cult by their opposition peers in Iran," Sadjadpour said.