The move means police can now charge people who materially or financially support the Islamic Revolutionary Guard Corps (IRGC) and requires banks to freeze any assets linked to the organisation.
The US designated the guards, part of the Iranian military, as a terrorist group in 2019.
Britain, however, has resisted a parallel move. The foreign secretary, David Cameron, has said there is no demand for the move from the UK security services and it would almost inevitably lead to Iran cutting off all diplomatic ties with Britain.
Labour, which is ahead in polling for the UK's 4 July election, has said it would proscribe the IRGC, a move that had strong cross-party support in the previous parliament, but the proposal was not included in its recent manifesto, which may indicate that the party is aware there are competing views in the intelligence services.
Lord Cameron has said he would prefer to deal with Iranian leaders directly and not through third parties as the US is required to do by using the Swiss embassy in Tehran as its conduit.
Canada has a large and politically active Iranian diaspora, in part because it has been generous in providing visas to dissidents fleeing the regime, and the diaspora has been pressing for the move for years.
In January 2020 the IRGC shot down Ukraine International Airlines flight 752 shortly after it left Tehran airport for Kyiv, killing 176 people including many with strong ties to Canada, and in Canada the IRGC has been accused of foreign interference, seeking to threaten and intimidate members of the Iranian diaspora and of wanting to carry out cyber-attacks within the country.
Iran has said the Ukrainian plane was mistaken for a missile at a time of heightened tension between the west and Iran.
Canada had previously included the IRGC's clandestine foreign intelligence and paramilitary wing, al-Quds, on its terror group list.
In October 2022 it banned the entry of senior IRGC leaders into Canada and promised to impose sanctions on them. Ottawa severed diplomatic relations with Iran in 2010.
An Iranian activist, Nazanin Afshin-Jam, told MPs this month as they debated the listing of IRGC as a terrorist organisation: "If we do not do something now, their terror will spread like cancer and cost us even more politically through foreign interference, economically through cyberwarfare and money laundering, and in lives through terrorism here in Canada."
The announcement was made in the middle of a convulsive presidential election campaign in Iran, after the death of Ebrahim Raisi in a helicopter crash last month, in which a central issue is the effect of the country's difficult relations with the rest of the world on its weak domestic economy.
In response to Canada's decision, Iran's acting foreign minister, Ali Bagheri, highlighted the IRGC's role in fighting Islamic State and said.
Ottawa would be held responsible for its actions.
The Canadian public safety minister, Dominic LeBlanc, did not give a specific single reason why the decision had finally been taken after so much discussion, but denied it had been because of political pressure.
In a letter in December 2023, a bipartisan group of legislators urged Justin Trudeau's government to list the IRGC as a terrorist group, arguing that it had played a role supporting Hamas before and after the group's 7 October assault on southern Israel that sparked the current war taking place in Gaza.
The designation of the group on the list means that, under Canadian law, if a financial institution such as a bank has an account in the name of someone who has been publicly identified as a member of the IRGC, it will freeze, seize and restrain that account or property.