"We call on the government, in cooperation with the (French) presidency of the European Union, to work to have this terror tag removed," said a petition released late on Monday. Some 150 MPs - a number that makes up about one-quarter of the Bundestag lower house - signed the document.
The deputies cited recent court decisions in Britain and at the European level finding no link between the main Iranian opposition group and terrorist activity.
The People's Mujahedeen Organization of Iran (PMOI) is considered a terrorist organisation by the EU and the United States.
Founded in 1965 with the aim of replacing first the Shah and then the clerical regime in Iran, PMOI has in the past operated an army inside Iran.
After being thrown out of Iran in the 1980s, its members sought refuge abroad, notably in Iraq where they established the military Camp Ashraf in the Diyala province.
The group was financed by Saddam Hussein to carry out attacks against the regime in Tehran. The US military disarmed the PMOI after the overthrow of Saddam in April 2003.
The strongly worded petition signed by the deputies said the "brutal regime" in Iran used the terror label to justify the oppression of the 4,000 people at Camp Ashraf and urged US-led forces in Iraq to protect them.
Maryam Radjavi, president of the National Council of Resistance of Iran, the political arm of the PMOI, told reporters she was "profoundly grateful" for the deputies' support, following similar moves in Britain, France, Belgium and Denmark.