Rasa News Agency reports - The statement said al-Sadr would not hold future government positions or have any representatives in parliament, BBC reported on Sunday.
Sadr and his militia group, the Mahdi Army, gained prominence after the US-led invasion of Iraq in 2003.
Iraqi Prime Minister Nouri al-Maliki is seeking re-election in the parliamentary election in April - a move publicly opposed by Sadr's bloc.
Sadr's statement said he was shutting down all his offices except for some charities.
Born into a religious Shia family, the cleric followed up anti-US sentiment in sermons and public interviews after the overthrow of last Iraqi dictator Saddam Hussein eleven years ago.
Sadr's followers clashed repeatedly with US forces, whose withdrawal the cleric consistently demanded.
In 2008, his Mahdi Army militia clashed with the Iraqi army, commanded by Prime Minister al-Maliki. Many were arrested, and Sadr's group said it was laying down arms and disbanding.
The cleric later made a truce with Prime Minister al-Maliki and helped him to secure a second term in office in 2010. The Sadr bloc became closely involved in the new government and obtained several ministerial posts following the election.
In 2011, Sadr returned from his self-imposed exile to Iraq, taking a more conciliatory tone and calling for Iraqi unity and peace.