Members of al-Sadr's militia, known as the Mahdi army, paraded through al-Sadr city, his power base in the northeast of the Iraqi capital.
Some of them wore black masks, and many carried banners and pictures of the cleric and of his father who was assassinated in 1999. An American and an Israeli flag were set on fire.
"This parade of the Mahdi army was ordered by his eminency the general commander of the army, Sayid Muqtada al-Sadr," said Sadiq al-Hashimi, a cleric who was leading a group of marchers.
"We are here to show the world our might, this army can be a striking force at any moment, it's a time bomb that will go off at a time and place it chooses."
Al-Sadr has often spoken out against the US occupation and against the Iraqi Governing Council which Washington hand-picked.
He has wide influence, especially among poor urban Shia in and around Baghdad, and formed his "Jaysh al-Mahdi" militia last year.
Newspaper shut down
The US-led occupation authorities in Iraq closed down a newspaper acting as his mouthpiece last Sunday, accusing al-Hawza of inciting violence. His supporters have mounted several major protests since.
Hundreds of Iraqis protested at
the closing of al-Sadr's newspaper
Saturday's marchers also complained about the arrest of a senior al-Sadr aide who they said had been detained by US forces.
"This is a message to the council of oppression and the US who tried to tell the people we have no influence," Said Murtada Kinani, a construction worker who joined the parade, said.
"Saddam could not stop us, do they think they can stop us?"