Scottish Labour as a party will support remaining in the EU and a spokesman said the "vast majority" of MSPs were expected to back that position.
But Eurosceptics in the party will be free to support the "Out" campaign in the run up to the vote.
The SNP's Europe spokesman Stephen Gethins said the decision was evidence of divisions in the Labour Party.
Prime Minister David Cameron has promised the referendum will take place by the end of 2017.
A Scottish Labour spokesman said: "Scottish Labour will be campaigning to remain in the EU as we believe it's in the best interests of families all across the country.
"It will be for individual MSPs to decide how they will vote in the EU referendum, but the vast majority will be campaigning for an 'In' vote."
Mr Gethins said the SNP was now the only major UK party which is "unequivocally committed to staying in Europe".
Labour MSPs will be allowed to vote and campaign for the UK to leave the EU ahead of the referendum on membership.