The imams were ordered to announce the decision at Friday prayers.
News of the ceasefire extension came on a day the Iraqi police said a suicide bomber killed four people at a Sunni mosque in Amiriya, 40km west of Baghdad.
The attacker targeted worshippers leaving the mosque at the end of Friday's prayers, killing three people, a police official was reported by the Associated Press as saying.
The US says the Mahdi Army ceasefire is vital to maintaining security in the country.
"It [the ceasefire extension] is an important commitment that can broadly contribute to further improvements in security for all Iraqi citizens, the US military said in a statement.
Al Jazeera's Mike Hanna, reporting from Baghdad, says that the previous ceasefire had undermined al-Sadr's influence.
He said: "Even so, his [al-Sadr's] extension of the ceasefire is a clear signal that he wants to resolve the plethora of issues in this country through political means and not armed confrontation."
A number of Mahdi Army members interviewed by the Reuters news agency expressed unhappiness with Sadr's order, which they believe will expose them to attack by US forces, but said they would obey.
Many Mahdi Army members and "Sadrist" political leaders wanted the ceasefire to end.
They claim it is being exploited by Iraqi and US forces to arrest al-Sadr loyalists, especially in southern Iraq, where rival Shia factions - Sadr's group and the Supreme Islamic Council in Iraq (SICI) headed by Abdul-Aziz al-Hakim - are vying for control.
Al-Sadr called the ceasefire after clashes last year between Mahdi Army fighters, Iraqi forces and members of SICI, in the city of Karbala.
On Thursday, up to 1,000 al-Sadr supporters gathered in Baghdad
's Sadr City
slum, a Mahdi Army stronghold, to mark the fourth anniversary of his uprising against US forces.
Al-Mahdi members marched through the streets carrying empty coffins to represent members killed in battles against US troops.