Shia cleric Moqtada al-Sadr has ordered his Mahdi Army militia to lay down its arms if a security pact between Baghdad and Washington provides for a US withdrawal from Iraq.
He said if withdrawal terms are written into the agreement, the milita will be transformed into a social organisation.
Baghdad and Washington are still negotiating an agreement that would govern US troop levels and allow them to operate after a UN mandate expires at the end of the year.
US President George W Bush and Iraqi Prime Minister Nuri al-Maliki agreed in principle last November to sign a Status of Forces Agreement in Iraq by the end of July, but controversy has delayed the arrangement.
The proposed pact has drawn sharp criticism from Iraq's various political factions, especially from the deeply anti-American Sadr.
Reform of the Mahdi Army could eventually lead to the emergence of a movement modelled on the Palestinian Hamas or Lebanese Hezbollah, experts have said.
