Adel Abd al-Mahdi's signature opened the way for the much-delayed first session of the parliament that was elected on 15 December.
His decision to sign on Wednesday also signalled a fundamental disagreement within once-unified Shia ranks.
Nadim al-Jabiri, head of one of seven Shia political parties, said on Wednesday: "He signed the decree today. I expect the first session to be held on Sunday or by the end of next week at the latest."
The constitution stipulates that the first session be held no later than Sunday, but negotiations were still under way on a specific date, he said.
The first session had been delayed by weeks of intense political infighting and reached an impasse after Abd al-Mahdi refused to sign the decree of Jalal Talabani, the president, on Monday.
A second Shia political figure, speaking anonymously because of the sensitive nature of the information, said Abd al-Mahdi had signed after Zalmay Khalilzad, the US ambassador to Iraq, sought the intervention of powerful Shia leader Abd al-Aziz al-Hakim in breaking the stalemate during a meeting on Tuesday.
Abd al-Mahdi heads the Shia parliamentary bloc loyal to al-Hakim, who is leader of the Supreme Council for the Islamic Revolution in Iraq.
Al-Jabiri, however, said the decision to sign the decree was taken on advice from Iraq's Federal Court on Wednesday that said parliament could be convened through an alternative process if Abd al-Mahdi continued to hold out.
Al-Jabiri is secretary-general of the Shia Fadila party, which sided with al-Hakim in an unsuccessful bid to nominate Abd al-Mahdi as head of a new government over Ibrahim al-Jaafari, the current prime minister, during a Shia caucus last month.
Al-Jaafari won re-nomination by one vote with the backing of Shia leader Muqtada al-Sadr.
Since then, an unlikely coalition of Sunni, Kurdish and some secular political figures, lead by Talabani, has openly challenged the al-Jaafari candidacy on the grounds he is too divisive and would be unable to form a government that represented the interests of all Iraq's religious and ethnic factions.
There was also great unease over al-Jaafari's close ties to al-Sadr.