0456 GMT February 29, 2020
On Saturday, Abadi traveled to the Shia shrine city of Najaf to meet Sadr.
After three hours of talks they issued a joint statement announcing they had set up a coalition.
The statement said their alliance "transcends sectarianism and ethnic" issues "in order to speed up the formation of the new government and agree on the principles which serve the aspirations of our people".
A source close to Sadr's Marching Towards Reform alliance said the thorniest issue is who will fill the post of prime minister in the new government.
Abadi would like to keep the job but is meeting resistance from rivals who beat his bloc in the election.
Saturday's joint statement did not mention an alliance Sadr formed earlier this month with two other lists, ahead of a manual recount ordered by Iraq's supreme court amid allegations of fraud.
Last week Sadr reached a coalition agreement with the former fighters under Hadi al-Ameri, whose list came second in the election with 47 seats.
Before that, Sadr formed an alliance with Shia Ammar al-Hakim's Al-Hikma list, which won 19 seats, and the secular outgoing Vice President Iyad Allawi, whose list was comprised of largely of Sunnis and secured 21 seats.
There was no immediate reaction from Al-Ameri's camp, but Abadi said his pact with Sadr would not compromise the Shia leader's other alliance.
"I affirm that this alliance is not in contrast to any other alliances either of the two lists have previously entered into with other blocs, rather, it flows in the same direction and same principles," said the prime minister
The top three winning blocs, all Shia-led, have upwards of 140 seats between them. At least 165 seats are needed to form a government although traditionally the ruling bloc in Parliament tends to be larger so as to include Sunni Arab and Kurdish politicians.