LUXEMBOURG - A EUROPEAN court ruled on Thursday that the EU was wrong to freeze the funds of Iran's main opposition group in exile, forcing the bloc either to take it off its terror list or appeal the decision.

'The court annuls the funds-freezing decision insofar as it concerns the PMOI (People's Mujahedeen of Iran),' the Luxembourg-based Court of First Instance said in a statement.

It was the third such ruling by the court, which is Europe's second-highest tribunal.

The court said that the EU had 'violated the rights of defence of the PMOI' by not providing the group with new information which the bloc said justified keeping it on Europe's list of terrorist organisations.

'By refusing to communicate to the court certain information about the case, the (EU) has equally infringed the fundamental right of the PMOI to effective judicial protection,' it added.

Founded in 1965 with the aim of replacing first the Shah and then the clerical regime in Iran, the PMOI - now led by exiled Iran opposition figure Maryam Rajavi - has in the past operated an armed group inside Iran.

It was the armed wing of the France-based National Council of Resistance of Iran (NCRI) but it renounced violence in June 2001. -- AFP