"The Hawza newspaper was allowed to be published again pursuant to an order by the US appointed Prime Minister, who has expressed his absolute belief in free press," according to an official statement.
The closure of the weekly paper by former US administrator Paul Bremer at the end of March and the arrest of one of al-Sadr's key aides were among the catalysts for an uprising by the Shia leader and his Mahdi Army against the occupation forces in central and southern Iraq that lasted nearly two months.
There was no immediate comment on Allawi's decision from al-Sadr's office in Sadr City, Baghdad, or the southern city of Najaf.
The prime minister said he was "confident his decision would open the way for all currents and movements in Iraq to take part in the country's march towards liberty, democracy, peace and prosperity".
He is "confident his decision would open the way for all currents and movements in Iraq to take part in the country's march towards liberty, democracy, peace and prosperity"
US selected Iraqi Prime Minister
Following a truce in early June, al-Sadr agreed to scale back his presence in Najaf and, since then, the leader has given mixed signals on whether he would support the new government.
Some of his aides have said his followers will not attend an upcoming national conference to pick an interim council to consult Iraq's new caretaker government.
Al-Sadr has been a vociferous critic of those cooperating with US-led occupation forces, describing them as "traitors" and including secular Shia Muslims, such as Allawi.