BERLIN — The European Union must reverse a funding freeze on an Iranian opposition organization because the E.U. didn’t give sufficient reason for accusing the group of supporting terrorism, Europe’s second-highest court ruled.

The People’s Mujahedeen of Iran was unfairly denied a chance to review the legal basis of the E.U.’s decision, the Luxembourg-based European Court of First Instance said in a statement yesterday.

E.U. governments in May 2002 included the group, which was formed in 1965 to push for the overthrow of the Iranian Shah, on a list of suspected terrorist groups. The list, established in the aftermath of the September 11, 2001, attacks in New York and Washington, designated organizations whose funding should be frozen as part of the fight against terrorism, according to the court’s ruling.

The court said the E.U. had kept the Mujahedeen on the list through numerous negotiated updates, even though the group had “renounced all military activity” in June 2001. The group had maintained an armed branch within Iran, the court said. America and the United Nations both consider it a terrorist organization.

The European Council is examining the decision, a spokesman, Jesus Carmona, said after the ruling. The court’s decision could be appealed to the European Court of Justice, the E.U.’s highest court.

The Mujahedeen, which describes Iran’s current leadership as “religious fascism,” called on the E.U. to reimburse its members for damages.

“Today, one of the highest judicial authorities in Europe confirmed the Iranian Resistance’s claim that the terrorist label from the beginning was a political issue which was meant to appease the mullahs,” Mujahedeen’s president-elect Mayam Rajavi said in a statement sent by e-mail.