Shia cleric Moqtada Sadr has ordered the renewal of the ceasefire his powerful militia has been observing for the past six months.
He announced in August that his Mehdi Army would not attack rival armed groups or American forces in Iraq.
This was widely credited with reducing sectarian tensions and contributing to the recent overall drop in violence.
BBC Baghdad correspondent Jim Muir says the government and US military will clearly be relieved by the move.
US military officials have publicly recognised this contribution of the ceasefire as helping to stabilise parts of Iraq.
Other key developments that have helped reduce the violence have been the surge of US troops in and around Baghdad, and the emergence of US-backed Sunni militia who have taken on al-Qaeda in Iraq in western areas of the country.
Deputy Iraqi Prime Minister Barham Saleh praised the move.
In: Iraq, Middle East
Tags: Iraq, Sadr, new cease fire, Shia cleric, iran, expulsion threat, war on terror, central front, Iraqi, opreation iraqi freedom, alqaeda, insurgents, militias
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