If the visit takes place, it will be the highest ranking visit from Iran since the break in diplomatic relations over the taking of American hostages in Tehran in late 1979.
Tom Casey, a State Department spokesman, said the visa was issued Tuesday afternoon local time, and that Khatami was slated to attend a function - the Alliance of Civilizations - sponsored by UN Secretary General Kofi Annan.
The former Iranian leader is also slated to speak at the Washington Cathedral on September 7.
Iran is considered a state sponsor of terrorism by the United States, but Casey said Khatami's visa was not only a courtesy granted to people going to UN functions but also recognition that not all Iranians 'are terrorists themselves.'
'I think this is an opportunity, in part, for former President Khatami to hear the concerns of the American people,' Casey said.
He said Khatami was certainly bound to 'get some tough questions from the American people' he meets with.
'I think it will be refreshing to have an Iranian leader face some of those kinds of questions,' Casey said.
Khatami was viewed as a reformist in the United States during his presidency that began in 1997 and ended last year.
The visa was issued two days before a UN-mandated deadline for Iran to cease uranium enrichment runs out.
The US is pushing for sanctions to be implemented provided for under the UN Security Council resolution, but China and Russia are likely to drag their feet on the issue. The council meets Thursday to consider Iran's response - given today as a clear 'no' to cooperation.
Casey said there were no plans for Khatami to visit with US officials, and said several other people in his 'contingent' had been granted visas. There would be no restrictions on his travel in the US.
Because the United States and Iran do not have formal diplomatic relations, Khatami would have had to travel to a third country to apply.
The anti-Semitism watchdog group, Simon Wiesenthal Center, has launched a campaign against granting the visa 'on the heels of both Iran's proxy war in Lebanon and its refusal to drop its nuclearization programme.'
The visa 'will be viewed by the mullahs as a reward for their policy of confrontation and hatred toward the United States and her allies,' a statement on the group's website said.
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