Al-Sadr made the announcement Saturday on his website, the New York Times reported Sunday.
"I announce that I will not intervene in politics. No party represents us from now on in Parliament or in any position inside or outside the government," he said.
The offices of his Sadrist Shiite party, the Ahrar bloc, will be shut down and only the charities and educational groups he runs will stay open, he said.
Hundreds of al-Sadr's followers gathered outside his office Sunday to urge him to reconsider his decision, the Times reported.
The 40-year-old has made similar announcements in the past, but changed his mind.
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