Four people were killed by the Iraqi police and scores more injured, reports CBS News chief foreign affairs correspondent Lara Logan.
Iraq's government has stepped up pressure to get the People's Mujahedeen Organization of Iran to leave the country as it seeks to protect its friendly relations with Tehran. But the United States insists members of the group, which has provided it with intelligence on Iran, should not be forcibly evicted.
The conflict reflects the delicate task the Iraqis face in balancing ties between the U.S. and Iran, and Tuesday's incident could be an embarrassment to the United States since it coincided with a visit to Baghdad by Defense Secretary Robert Gates.
The top U.S. general in Iraq said the raid followed a dispute over whether Iraq could establish a police station inside the camp, which is located north of Baghdad in Diyala province. Iraqi forces entered the camp "using non-lethal force" to set up the police station without the consent of the People's Mujahedeen, according to Gen. Ray Odierno.
The Iraqi government did not inform the United States in advance of its plans to raid Camp Ashraf, he added.
"We have had promises from the government of Iraq that they would deal with the MEK in a humane fashion," Odierno said, using the group's Farsi initials. "Using non-lethal force is a good sign."
However, a video provided by the People's Mujahedeen showed Iraqi forces using batons and water cannons against the residents gathered at the camp's gates. Group officials said dozens of people were wounded.
The authenticity of the video couldn't be independently verified.
Government spokesman Ali al-Dabbagh confirmed that Iraqi troops had entered the camp to set up a police station as part of new measures to establish security, but he denied they used violence against the residents.
"We do not intend the worse for them and we will not force them to depart against their wishes, but they should cooperate with the governmental procedures," he said.
Some 3,500 people are thought to live in the camp, about 80 miles (130 kilometers) north of Baghdad.
The raid came a day after the Iraqi government, which has maintained a security cordon around the camp's perimeter, said it would assume complete control of the camp but promised to protect the people inside.
Shortly afterward, the group's leaders announced they were willing to return to Iran if they were guaranteed immunity from prosecution. They insisted on guarantees in writing from Iran, the United States, the United Nations and Iraq.
A legal counsel at the camp, Behzad Saffari, said the Iraqis also opened fire in Tuesday's melee. He claimed American troops witnessed the event but did not intervene except to take pictures.
"They opened fire on the crowd and threw tear gas," he said. Two people were injured by gunfire and 150 by beatings, he said.
The U.S. State Department reiterated Tuesday the Iraqi government has assured it that no member of the group in Iraq will be forcibly transferred to a country where they fear persecution.
"We continue to monitor the situation closely to ensure the residents of Camp Ashraf are treated in accordance with Iraq's written assurances that it will treat the residents there humanely," State Department spokesman Ian Kelly said in Washington. "This is really a matter for the government of Iraq to handle. This is completely within their purview. But we are closely monitoring it."
Iran has pressed for years to close the camp, but the issue came to a head after Iraqi forces took over security for Camp Ashraf on Jan. 1, under an Iraqi-U.S. security pact.
Saddam Hussein allowed the Iranian exiles to establish their base in Diyala in 1986 to launch raids into Iran during the two neighbors' eight-year war. At the same time, many Iraqi Shiites fled to Shiite-dominated Iran and some of them fought on the Iranian side against Iraq.
U.S. troops disarmed the Iranian fighters and confined them to Camp Ashraf after the 2003 invasion of Iraq. The U.S. military in Iraq later signed an agreement with the militia, promising members would be treated as "protected persons" under the Fourth Geneva Convention.
Founded by Iranian leftists, the group opposed Iran's U.S.-backed Shah Mohammad Reza Pahlavi and took part in the 1979 revolution that brought a clerical regime to power, but its blend of Marxism and secular Islamism eventually pitted it against the mullahs in Iran.
Many of camp Ashraf's residents have citizenship in a Western country, including some in the United States.
The European Parliament urged Iraq in April not to deport members of the group to Iran because they face possible abuse or torture in Iran.
The group is considered a terrorist organization by Iran and the United States, but it was taken off the European Union's terror list earlier this year after it won a legal battle in EU courts.