New York-based Human Rights Watch says hundreds of Iraqi refugees face the prospect of "rotting in jail" unless they agree to return home.
About 50,000 Iraqis are thought to have fled violence and instability in Iraq to the relative safety of Lebanon.
HRW says at least 500 Iraqi refugees are in jail in Lebanon and 150 were expelled in the first half of 2007.
Its report Rot Here or Die There: Bleak Choices for Iraqi Refugees in Lebanon urges the authorities to ease restrictions on Iraqis and grant them temporary legal status.
"By giving Iraqi refugees no option but to stay in jail indefinitely or return to Iraq, Lebanon is violating the bedrock principle of international law," said HRW refugee policy director Bill Frelick.
A Lebanese official quoted by AFP said the country did not offer special treatment for Iraqis, but did offer residency to anyone who qualified for it.
Lebanon never signed the 1951 UN convention on refugees. For decades its politics has been dominated by finely balanced sectarianism, which analysts say makes it hyper-sensitive to demographic changes caused by influxes of refugees.
More than 2.5 million Iraqis are refugees, most of them in neighbouring Syria and Jordan and at least 2 million more are internally displaced.