The move, announced by al-Sadr and Hadi al-Amiri of the Fatah coalition in the revered southern Shiite city of Najaf, came as a surprise as al-Sadr has been touting himself as a nationalist leader who opposes Iranian influence in Iraq.
The new alliance controls 101 seats, still far from the 165 required for a majority.
At a news conference Tuesday, the two leaders said their alliance is aimed at expediting the formation of a new government and called on others to join them.
"We had a very positive meeting in order to end the suffering of the country and the people," al-Sadr said. "Our new alliance is a nationalist one and within the national frames."
In the years following the U.S.-led invasion that toppled Saddam Hussein, al-Sadr led militiamen who fought American troops. At that time they were backed by Iran, but in recent years the cleric has presented himself as a nationalist leader opposed to Iranian influence. His main focus has been waging a public campaign against corruption.
His Sa'eroun alliance, which also includes the Communist Party and secular candidates, won 54 seats, followed by Fatah, a coalition of Shiite paramilitaries who fought the Islamic State group, with 47 seats. Prime Minister Haider al-Abadi's Victory alliance took 42 seats.
Iraq's May 12 elections, the fourth since the 2003 U.S.-led invasion that toppled Saddam Hussein, was marred by allegations of fraud and irregularities. It saw the lowest turnout in 15 years due to widespread anger at the country's dysfunctional political class.
Last week, al-Abadi announced that a commission set up by the government to look into alleged irregularities in the vote found "unprecedented" violations and "widespread manipulation" and faulted election authorities. It recommended a recount for 5 percent of the vote.
Hours later, lawmakers voted on annulling results of ballots from abroad and camps for displaced people in four Sunni-dominated provinces, and called for a manual recount of all ballots.
A few days later, a fire ripped through a Baghdad storage site for ballot boxes, sparking calls to redo the election as the country's top judicial authority took over the Independent Elections Commission to prepare for the manual recount.
During his weekly press conference Tuesday, al-Abadi objected to holding new elections, a position echoed by al-Sadr and al-Amiri.
Initial investigations, said al-Abadi, showed that Sunday's fire was deliberately lit by "criminals who seek to sabotage the political process from one side and to steal the voters' votes from another."
Citing the investigation, he added that those behind the fire had easy access to the facility, as no doors had been broken and security cameras were disabled.
Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.