Tahir-ul-Qadri arrived in Islamabad in mid-August along with cricketer-turned-politician Imran Khan and thousands of their supporters, with the aim of forcing Prime Minister Nawaz Sharif to step down over alleged rigging in last year's election.
The protests unnerved the government, shook investor confidence and triggered speculation that the country's powerful army would intervene as it had in the past.
Tension peaked at the end of August with violent clashes that saw three protestors killed as they attempted to storm parliament, but cooled once it became clear the military was not prepared to topple Sharif.
Speaking to reporters in front of parliament, Qadri said: "This phase of the Revolution March in Islamabad is now over and participants can go back home."
He added the focus of the protests would now shift to cities across the country including Karachi, the main commercial hub.
"You should now pack up and go back home with a sense of victory," he added without elaborating.
The hundreds of Qadri supporters who remain camped in tents in recent weeks comprise the majority of the protesters at the site and their withdrawal could effectively end the sit-in.
Observers had begun to question how long they could remain there without returning to work or allowing their children to attend their regular schools.
An AFP reporter who visited the site had also found that in some cases, labourers were being paid around Rs 400 ($4) a day to attend.
Both Qadri and Khan allege massive systematic rigging in the 2013 poll that swept Sharif to office -- the country's first peaceful transition of power from one civilian government to another in a country that has been ruled for half its existence by the military.
It remains unclear whether Khan will follow suit with a similar move — though his party has already staged large rallies in the country's major cities of Lahore, Karachi and Multan — possibly indicating rising support among the urban middle classes.
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