The US is to channel money directly to Iranian groups promoting democracy in Iran for the first time in 25 years.
Iran and the US broke off ties in 1980
Educational and humanitarian groups will be eligible for the funds - some $3m - the state department has said.
Iran has condemned the plan as interference in its affairs and a violation of a 1981 accord with the US.
The US broke off relations with Iran following the 1980 Iranian revolution and Washington has branded Tehran part of what it called an "axis of evil".
Iran says the plan breaches the agreement which ended the 1980-1981 crisis in which US embassy staff were held hostage in Tehran.
Under the accord, the US pledged "not to intervene directly or indirectly, politically or militarily in Iran's internal affairs".
State department spokesman Richard Boucher denied the plan was inconsistent with the agreement.
"Supporting democracy and human rights around the world is something the United States does everywhere.
"It's not an attempt to decide somebody else's internal affairs."
The amount budgeted for Iranian groups is relatively small compared to the funds Washington set aside for groups opposed to Saddam Hussein in Iraq.
In 1998 President Clinton approved almost $100m for groups opposed to the former Iraqi regime, a figure matched by President George W Bush in 2002.