Shaikh Mahmud Sudani said on Thursday he had received a telephone call from Muayad al-Khazraji, a religious judge who was believed to have been held at Abu Ghraib prison outside Baghdad.
"He was released this morning," Sudani said.
Al-Khazraji was detained nearly a year ago along with seven other clerics close to al-Sadr, including Sudani, all charged with engaging in anti-US activities.
The arrests triggered widespread protests.
The other seven have already been freed.
Al-Khazraji's release could help in negotiations to try to draw up a truce between US forces and al-Sadr's fighters in the Sadr City district of Baghdad.
"It would appear to be a softening in the Americans' position," Sudani said of his fellow cleric's release.
Al-Sadr has demanded that US forces free his senior aides, stop bombing Sadr City and help rebuild the huge Shia slum district as a prelude to any ceasefire agreement.
Most of Sadr City is a no-go area
for US-led forces
The interim Iraqi government has demanded that al-Sadr's fighters disarm and hand over their weapons.
Talks to draw up a truce have been going on for several days, but had reached a stalemate in the past 36 hours.
Green Zone explosion
Meanwhile, a loud explosion echoed across central Baghdad on Thursday and white smoke rose from the direction of the Green Zone housing Iraqi government offices and the US and British embassies.
The interim interior ministry and the US military had no immediate word on the cause of the blast. All entrances to the Green Zone were closed off, people working there said.
The Green Zone, a sprawling compound on the west bank of the Tigris river, has been a frequent target for fighters using car bombs, rockets and mortars to attack US forces and Iraq's US-backed interim government.
On Wednesday, US forces defused a small bomb near a popular restaurant inside the heavily fortified complex.
"It was an improvised explosive device," said Lieutenant-Colonel Steve Boylan.
"It was defused and there were no injuries or damage," he added.
The barricaded Green Zone is home
to the Iraqi interim government
The bomb was discovered near the Green Zone Cafe, one of the more popular restaurants used by US military personnel and contractors who live and work in the area, formerly Saddam Hussein's presidential complex.
There have been occasional bomb scares inside the area, which is almost entirely enclosed within four-metre-high concrete blast walls, but which is home to many Iraqi families as well as US, British and Iraqi officials.
The US embassy has advised citizens to avoid the cafe and other restaurants within the Green Zone complex, which is supposed to be one of the safest areas of Baghdad.
US soldiers killed
In a separate incident, one US soldier was killed and two wounded in an overnight attack on an army convoy near the city of Falluja, the military said in a statement.
An "unknown type of explosive device" hit the convoy at about around 2145 local time (1845 GMT) on Wednesday.
And another US soldier was killed when Iraqi fighters attacked a patrol north of Baghdad.
The US military said a roadside bomb, which also injured an Iraqi translator, exploded around midnight on Wednesday near Baiji, 180km north of the capital.
Based on the latest Pentagon figures, the death brings to 1066 the number of US troops killed in Iraq since last year's invasion.