Ali al-Dabbagh, an Iraqi government spokesman said Muqtada al-Sadr's order will help restore peace.
"A large number of people will listen to Moqtada al-Sadr's call. Life will return to all of Iraq as before," al-Dabbagh said on Al-Iraqiya state television.
"Those who do not obey the instructions of the government and of Sadr, the government will be forced to implement the law against them."
Al-Sadr's nine-point plan, agreed with the Iraqi government, was issued by his headquarters in the city of Najaf and broadcast through loudspeakers on Shia mosques.
James Bays, Al Jazeera's correspondent in Baghdad, said: "The main elements are that Muqtada al-Sadr's fighters should leave the streets ... in return, apparently, they will not be pursued, the Iraqi government will not arrest any of them unless they have arrest warrants for them.
"The big question now is whether the Mahdi army fighters will obey this command because there are all sorts of factions and splinter groups in existence." Basra operation
Despite the order Iraqi troops will continue military operations against "criminals" in Basra, al-Dabbagh later told the Reuters news agency.
"The operation in Basra will continue and will not stop until it achieves its goals. It is not targeting the Sadrists but criminals," he said.
The Basra crackdown was aimed at disarming the city's warring Shia militias, including the Mahdi Army, as well as crushing a number of criminal gangs.
Al-Sadr's order comes a day after he called on Arab states to support his militia's battle against "US occupation", amid continuing clashes between armed Shia groups and Iraqi government forces.
Nuri al-Maliki, Iraq's prime minister, has personally supervised the operation in Basra against the militia groups.
He told state-owned television on Saturday that Iraqi forces would not leave "without restoring security and order".
Late on Sunday, the Baghdad military command announced that a curfew in the capital on Thursday would end at 6am (0300GMT) on Monday after it was extended indefinitely on Saturday, state television announced.
However, the television report said a vehicle ban would maintained in Sadr City, Kadhimiyah and Shuala, the three Shia neighbourhoods most affected by the violence.
Police in Basra said on Sunday that 163 people have been killed and about 500 injured in sporadic clashes in the city between government forces and militias since Tuesday.
In the southern city of Nasiriyah, 67 people have been killed and another 137 wounded, local officials said.
At least 10 mortars fell into Baghdad's fortified Green Zone as sporadic fighting continued overnight into Sunday.
Tom Holloway, British military spokesman for Iraq, told Al Jazeera that British forces in Basra had fired artillery rounds at people they had identified as opposition fighters.
"We've been firing in support of Iraqi ground forces. They've been in contact, they've requested support from the coalition and artillery on a couple of occasions has been deemed the most appropriate response."
"We use our surveillance assets and conduct a collateral damage assessment. Obviously, once we've positively identified the target we make an assessment that we are able to attack it," he said.
Holloway said that British involvement in the operation is "entirely in line with the agreements with the government of Iraq", known as operational overwatch.