The decision was made after Shi'ite Muslim cleric Grand Ayatollah Ali al-Sistani called for a change of leadership on Friday, according to Al Arabiya.
Sistani said attacks on peaceful protesters were "forbidden" but also urged demonstrators to reject violence.
Protesters "must not allow peaceful demonstrations to be turned into attacks on property or people," he said.
Mahdi called on the government to "act in the interests of Iraq and preserve the blood of its people, and avoid slipping into a cycle of violence, chaos and devastation."On Thursday, security forces shot dead 46 people in another southern city, Nassiriya, 12 in Najaf and four in Baghdad bringing the death toll from weeks of unrest to at least 408, most of them unarmed protesters, according to a Reuters tally from medical and police sources.Mahdi's resignation comes exactly a month after Lebanese Prime Minister Saad Hariri announced his resignation in the face of anti-government protests that spread throughout Lebanon due to a troubled economy.In both Lebanon and Iraq, protesters spoke out against Iranian influence in their countries. In Lebanon, Hezbollah supporters have clashed multiple times with protesters and in Iraq protesters have claimed that Iranian forces and pro-Iranian militias have attacked demonstrators. On Thursday in the city of Najaf in Iraq, clashes between security forces and protesters broke out as protesters torched the Iranian consulate in the city.Reuters and Seth J. Frantzman contributed to this report.