The Iraqi government has welcomed the move by radical Shia cleric Moqtada Sadr to freeze the activities of his Mehdi Army militia for six months.
The US has had frequent clashes with the Mehdi Army.
Speaking to the BBC, Iraq's national security adviser said the suspension was "very good news" and would "contribute to peace and stability".
But an aide to Mr Sadr later denied he had said on Wednesday that the militia would end attacks on foreign troops.
Ahmed al-Shaibani told al-Jazeera TV that he had made no such statement.
Mr Shaibani said various reports quoting him saying that the order included "suspending the taking up of arms against occupiers as well as others" were false.
"The statement only said that the Mehdi Army would be suspended for at most six months, but did not refer to suspending or continuing the operations against the occupation, or any such thing," he said.
On Tuesday, police blamed Mehdi Army militiamen for clashes during a Shia festival in the holy city of Karbala, which claimed the lives of more than 50 people.
Moqtada Sadr insisted his men were not responsible for the bloodshed.
But at a news conference in the city on Wednesday, one of Mr Sadr's aides read out a statement announcing that the Mehdi Army had suspended all its activities.
"We declare the freezing of the Mehdi Army without exception in order to rehabilitate it in a way that will safeguard its ideological image within a maximum period of six months starting from the day this statement is issued," Sheikh Hazim al-Araji said.
The Iraqi national security adviser, Mowaffaq al-Rubaie described the suspension as very good news.
"We welcome this announcement and we believe it will contribute to the peace, stability and prosperity of Iraq in the future," he told the BBC's Newshour programme.
A US military spokesman said commanders would be watching to ensure that the pledge was followed through.
"What really matters here is actions, and so those are the measures of merit that we'll be watching for," Brig Gen Kevin Bergner told the Associated Press.
In April 2007, the US defence department described the Mehdi Army as the greatest threat to Iraq's security, replacing al-Qaeda in Iraq as the country's "most dangerous accelerant of potentially self-sustaining sectarian violence".
Founded in the summer of 2003, its membership is now estimated at 60,000
The group takes its name from the Mehdi - a messianic figure in the Shia tradition
The US says Iran has trained, supplied and financed the group
The militia is accused of infiltrating the Iraqi security forces and has been blamed for attacks on Sunni Muslims
The militia has split in recent months into increasingly autonomous factions, some of which the US says are trained and armed by Iran.
However, the BBC's Mike Wooldridge in Baghdad says past experience of attempted purges of rogue elements in the militia will doubtless lead US and UK commanders to be wary and watch for the effect of the order on the ground.
The Mehdi Army was created by Mr Sadr in the summer of 2003 to protect the Shia religious authorities in the holy city of Najaf.
The militia strongly opposed the presence of the US-led coalition and took part in major uprisings against security forces in April and August 2004.
It has also been linked to many sectarian attacks on Iraq's Sunni Arabs and has frequently clashed with rival Shia militia.
The Mehdi Army has become one of the major armed forces on the ground in Baghdad and southern Iraq, with a membership of about 60,000, according to a December 2006 report by the Iraq Survey Group.