Fowzi Nejad was convicted of conspiracy to murder in 1981 for his part in the six-day Kensington siege and was eventually released from prison in 2008.
All the other terrorists were killed when the SAS stormed the embassy after the siege in 1980. Nejad only survived by pretending to be one of the 26 hostages inside.
Two hostages were killed in the siege and several others were left seriously injured.
The 61-year-old cannot be sent back to Iran because he may be executed by the regime.
In London, he gets benefits because of his bad back and is unable to work as a condition of his release, the paper reported.
A friend said: “He also loves a night out in the West End and he has an eye for the ladies.
“It’s a proper playboy lifestyle and he loves it.”
At the time of the siege, Nejad was a 23-year-old fighting for independence for Khuzestan, a region of Iran.
MP Bob Stewart, who served in the Army, told the paper: “He is damn lucky this state is decent enough to allow him to live here in comfort.
“We must be one of the few countries that would allow this.”
