Shia militiamen loyal to radical Iraqi cleric Moqtada al-Sadr declared a unilateral cease-fire on Thursday in a Baghdad slum - their last holdout against US troops.
The move is the latest sign that Sadr is softening his hard line against US troops and their Iraqi political allies ahead of the formal handover of power from the US-led occupation to an interim government next week.
"For the sake of public interest and considering the sensitive situation the oppressed Iraqi people are under, the Central Mehdi Army Command announces a halt to military operations within Sadr City," a statement said.
"The Mehdi Army wants the security situation to stabilise and does not want those who are bent on causing chaos in the run up to the power transfer to succeed," said the statement obtained by Reuters.
Sadr agreed last month to withdraw his forces from the holy Shia cities of Najaf and Kerbala in central Iraq under pressure from moderate Shia leaders.
His new approach has opened political doors. Iraq's interim president Ghazi al-Yawar urged Sadr this month to lay down his arms and enter politics, a prospect which US President George W. Bush said he would not oppose.