The People's Mujahideen Organisation of Iran (PMOI) would be forced out of its base north of Baghdad, Camp Ashraf, "using all means", a spokesman said.
But its members would be deported to a third country and not Iran, he added.
The PMOI's political wing has said 34 people were killed and 300 injured in an "attack" on Camp Ashraf on Friday.
Medics say at least 10 died, while officials put the toll at three.
The PMOI, also known as Mojahedin-e Khalq, is considered a terrorist group by the US and Iran.
It set up Camp Ashraf in Iraq in the 1980s and was welcomed by then-President Saddam Hussein, who was fighting a war against Iran. He funded and armed the PMOI, which fought alongside Iraqi troops.'No intention of staying'
During the US-led invasion of Iraq in 2003, Camp Ashraf was bombed by coalition forces. PMOI leaders eventually agreed a ceasefire and its members were disarmed.Continue reading the main story
We have to find a nation where they can go, and we will look to the UN to help”End Quote Ali al-Dabbagh Iraqi government spokesman In 2009, the US military handed responsibility for the camp to Iraq's Shia-led government, which has repeatedly vowed to close it.
On Monday, Iraqi government spokesman Ali al-Dabbagh said that in the wake of last week's violence the cabinet had "committed to implement an earlier decision about disbanding the terrorist group, the People's Mujahideen Organisation of Iran, by the end of this year at the latest, and the necessity of getting it out of Iraq".
"This organisation must be removed from Iraqi territory by all means, including political and diplomatic, with the co-operation of the UN and international organisations," he said in a statement.
Iraq was "taking into consideration the wish of the PMOI members to choose the country in which they wish to reside", he added.
"We have to find a nation where they can go, and we will look to the UN to help."
A spokesman for the UN High Commission on Refugees, Andrej Mahecic, said residents of Camp Ashraf could apply individually for refugee status, which would help them find a permanent home.
But before that could happen, they would have to renounce violence as a means of achieving their goals, which some have refused to do, he added.
Shahin Gobadi, a PMOI spokesman based in Paris, said the camp residents would be willing to move to the US or EU member states willing to grant them asylum.
"We have no intention of staying in Iraq, but there has been no response," he told the Reuters news agency.
Mr Gobadi said they were also willing to return to Iran, but only if it could be guaranteed that they would not be punished by the authorities.
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