Iraq's government announced last week demonstrations would be allowed only at three football stadiums, ostensibly because shopkeepers in the city's main Tahrir Square complained of losing trade during weekly protests.
"The government claims democracy, and this is undemocratic," Sadr said on Wednesday, in a written response to queries about the protest ban from his supporters.
Sadr loyalists have staged several large rallies in Baghdad and other parts of Iraq, most recently when tens of thousands turned up for an anti-US protest earlier this month in the capital.
"I think this decision shows the government's fear of demonstrations. The move is ridiculous and meaningless," said the cleric, who is currently based in Iran to further religious studies.
Protests against poor supply of basic services such as electricity have grown in Iraq since late February, after uprisings toppled entrenched regimes in Tunisia and Egypt and spread across the Arab world.
They have been held in different parts of Iraq at least every week, especially in the Kurdish north, which is dominated by two parties that maintain a stranglehold on the region's politics.
Baghdad security spokesman Major General Qassim Atta cited complaints by shopkeepers, who were losing business when security forces closed off streets during demonstrations, as the reason for the ban in the capital.
But Sadr said the government had placed the interests of business owners above those of the general public.
Authorities in the province of Sulaimaniyah in the autonomous Kurdish north also announced a ban on unauthorised protests on Monday, after dozens of injuries and deaths during near-daily rallies in the past two months.
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