Abadi said the government had made a decision to increase the salaries of fighters' in the powerful pro-Tehran Hashd al-Shaabi paramilitary force, and make wages "equal to that of the armed forces".
Iraqi outgoing Prime Minister Haider al-Abadi said on Thursday that he will not hold onto the post of prime minister for a second term.
"I renew the call for the political blocs in the parliament to accelerate the nomination of the speaker of the house, then the presidency of the republic", Abadi said. An alliance of pro-Iranian former paramilitary fighters led by Hadi al-Ameri - which came in second in May - has said it would work with Sadr to form a new government that excludes Abadi.
Oil-rich Basra and other cities in Iraq's southern Shia heartland have been protesting since July over endemic corruption, soaring joblessness and poor public services.
This is bad news for Iraqi PM Hayder Abadi, who despite having formed a coalition deal with Sadr, is seen as far too weak to be seriously considered for another term as premier.
"They are making a mockery of the blood of our martyrs", said Waleed Al Ansari, one of the protest organisers told the Associated Press.
Iraq's newly elected parliament held its first session as two blocs, both claiming to hold the most seats, vied for the right to form a new government.
Cleric Muqtada Sadr, whose bloc won the 12 May elections, distanced himself from his one-time ally Abadi.
"We demand the government apologize to the people and resign immediately", said Hassan al-Aquli, a spokesman for Sadr's political list. While the war-torn country's parliament met last week, the body failed to establish a concrete majority, or even elect a speaker.