Officials from the movement, which holds six ministries and a quarter of the parliamentary seats in Prime Minister Nuri al-Maliki's Shi'ite Alliance, said the formal announcement would be made on Monday at a news conference.
The move is unlikely to bring down the government, but it could create tensions in Maliki's fractious Shi'ite-led government of national unity at a time when it is trying to heal sectarian divisions that threaten to tip Iraq into civil war.
"We are going to declare our withdrawal from government because the prime minister does not want to make a timetable for the withdrawal of foreign forces from Iraq," said one official in Sadr's movement who declined to be identified.
There was no immediate comment from the government.
Maliki says he sees no need to set a timetable. He said last week his government was working to build up Iraq's security forces as quickly as possible so U.S.-led forces could leave.
Two other Sadr officials confirmed the intention to pull out of the government but stressed the movement would continue to give "cautious" backing to a U.S.-Iraqi security crackdown in the capital. The Sadrists will remain in parliament.
Sadr's Mehdi Army militia, regarded by the Pentagon as the greatest threat to peace in Iraq, has kept a low profile during the two-month- old crackdown, reportedly on the orders of Sadr.
Despite the offensive, violence raged in Baghdad on Sunday.
Up to 34 people were killed and 100 wounded by bombs in mainly Shi'ite districts. Police also found 30 bodies, a sharp rise from the usually much lower number of victims of sectarian death squads found in the capital's streets each day since the security plan began.
Two British military personnel died when two helicopters crashed north of Baghdad. Four more people were injured when the Puma transport helicopters crashed near a U.S. air base in Taji, 20 km (9 miles) from Baghdad, British officials said.
The helicopters may have collided in mid-air, the U.S. military said.
FEARED MILITIA
The Sadrists ended a two-month boycott of parliament in January after pulling out in protest over the timetable issue and a meeting between Maliki and U.S. President George W. Bush. They returned after a deal was brokered.
A senior official in Sadr's movement, Abdul-Mehdi al-Muteyri, said Sadr had also ordered the pullout, saying Maliki was hamstrung by political parties in his government pulling him in different directions.
"We don't believe in partisan quotas. Under the direct orders of Moqtada al-Sadr we have decided we are going to leave the government in order to give the prime minister the best possible options so that he can run his government," Muteyri said.
Tens of thousands of Iraqis answered a call by Sadr to rally in the holy Shi'ite city of Najaf last week to protest against the presence of some 140,000 U.S.-led forces in Iraq.
Sadr led two uprisings against American forces in 2004 but later entered mainstream politics. He is a key backer of Maliki.
The U.S. military says Sadr is now in hiding in Iran, but the cleric's aides insist he is still in Iraq.
Bush said last week that setting timetables for a troop withdrawal would undermine the crackdown in Baghdad, which he said was beginning to show signs of progress in curbing sectarian violence.
(Additional reporting by Waleed Ibrahim, Yara Bayoumy, Aseel Kami and Dean Yates)