"We call upon the House of Representatives from which this current government emerged to reconsider its options in that regard", al-Sistani said in the statement - a clear sign he was withdrawing his support for the prime minister.
After protesters burned down the Iranian consulate in the holy city of Najaf on Wednesday, security forces shot 62 people dead nationwide on Thursday, with clashes escalating in southern provinces.
In Baghdad, at least 11 protesters were wounded near the strategic Ahrar Bridge when security forces fired live ammunition and tear gas to prevent demonstrators from removing barricades.
Iran's influence in Iraq has drawn the ire of protesters across sectarian lines, who have attacked symbols of Iran's clerical leadership and Iran's consulate in Karbala and Najaf.
The formal resignation came after an emergency cabinet session on Saturday in which ministers approved the document and the resignation of key staffers, including Abdul Mahdi's chief of staff. Tehran ordered Abdul-Madhi to crack down on the demonstrators and he complied, sending in military forces to "impose security and restore order".
Though protesters celebrated the imminent departure of the prime minister, they said they would not stop their demonstrations until the whole of the political class was removed.
Weeks of political wrangling are expected before a successor to Abdul Mahdi is picked and a new government formed.
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"We'll keep up this movement", said one protester in the southern hot spot of Diwaniyah, where thousands turned out early yesterday. Security forces responded by firing on the protesters.
"It's not enough", said Ali Al Sayeda, another demonstrator.
Adil Abdul-Mahdi was a consensus candidate who struggled to deliver promised reforms.
"The perspective I received from the chief of the federal supreme court is that the resignation should be submitted to those who voted the government in", he said.
"This is a positive thing.it show's were no longer a dictatorship - governments do resign, and this is how authority is in democratic countries", he said.
The grassroots movement is the largest Iraq has seen in decades and also the deadliest, with more than 420 people killed and 15,000 wounded in Baghdad and the Shiite-majority south, according to an AFP tally. "We need them all out, root and branch".