The funding suspension was announced on Friday after several people reported the account was targeting them for criticising or questioning the Trump administration’s stance on Iran.
The Iran Disinformation Project was funded by the department’s Global Engagement Centre, which was set up by Congress to counter online extremismand propaganda.
But several people denounced the group’s activity on Twitter in recent weeks after it took to attacking those it deemed not critical enough of the regime, branding them as “mouthpieces” and supporters of the Iranian government.
The identity of the person or group contracted to run the account or how much money it had received was not immediately clear.
Iranian-American commentator Negar Mortazavi, who was one of the targets and is a consultant editor for The Independent, published a long list of people criticised by the Twitter account @IranDisinfo.
They included a researcher for Human Rights Watch, a Washington Post columnist, a BBC journalist and a professor at Georgetown University.
The tweets have since been deleted.
“So the US state department uses taxpayer money to fund online attacks on Human Rights Watch because the organisation is researching the human cost of US sanctions in Iran,” Ms Mortazavi said in a Twitter thread on 30 May.
“They use US state department money to attack and smear diaspora Iranian journalists, analysts, academics, and activists, some living in exile.”
The US state department said that funding was cut because the group’s recent tweets had violated its guidelines for counter-propaganda projects, but that the bulk of its work conformed to those terms.
However, Ms Mortazavi rebutted the response in a later tweet.
“That is false. @IranDisinfo attacks are not new. They have been going on for months, almost since the launch of the account,” she tweeted, adding a long list of attacks.
The State Department's Global Engagement Centre was created by Congress in 2016 amid the Isis’s rise to power in Syria and Iraq to counter its online extremism and propaganda.
Its portfolio was later expanded to include fighting foreign government propaganda, particularly from Russia, after Russian attempts to interfere in the 2016 presidential election, in part through social media.