Facing enormous pressure at home and abroad to step aside, Nuri al-Maliki dropped his bid for a third term as prime minister of Iraq on Thursday and pledged support for his replacement, moderate Shia Haider al-Abadi.

Appearing on state television flanked by Abadi and other Shia politicians, al-Maliki spoke of the grave "terrorist" threat from Islamic State of Iraq and Syria (ISIS) militants before giving up on his fight to stay on.

"I announce before you today, to ease the movement of the political process and the formation of the new government, the withdrawal of my candidacy in favour of brother Dr. Haider al-Abadi," said al-Maliki.

Abadi is seen as a far less polarizing figure who has a chance of uniting Iraqis against Sunni insurgents who have captured large parts of the country in the north and west - including Iraq's largest dam and five oil fields.

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Thousands of members of the Yazidi religious minority have fled to escape an advance by Sunni fighters. (Youssef Boudlal/Reuters)

The announcement is likely to please the Sunni minority which dominated Iraq under Saddam Hussein's iron-fisted rule but was then sidelined by al-Maliki, a relative unknown when he came to power in 2006 with strong U.S. backing.

The man who plotted against Saddam for years from exile drew comparisons with his former enemy, who had launched brutal crackdowns on Shias and Kurds.

Critics accused al-Maliki of being an authoritarian leader with a sectarian agenda that drove Sunnis, including heavily-armed tribes, into the Islamic State camp and revived a sectarian civil war.

White House quick to react

The White House praised al-Maliki for dropping his bid for a third term.

"Today, Iraqis took another major step forward in uniting their country," U.S. national security adviser Susan Rice said in a statement.

"These are encouraging developments that we hope can set Iraq on a new path and unite its people against the threat presented by [ISIS]," Rice said. "The United States remains committed to a strong partnership with Iraq and the Iraqi people."

U.S. Secretary of State John Kerry described Maliki's decision as "important and honourable" and said "the United States stands ready to partner with a new and inclusive government to counter this threat" from ISIS.

Serving in a caretaker capacity since an inconclusive election in April, al-Maliki was digging in until the last minute, defying calls from Kurds, Sunnis, fellow Shias, regional power broker Iran and the United States to give up.

Standing beside clerics, politicians and military officers — an apparent attempt to show Iraqis their leaders reached consensus for a change — al-Maliki drifted into conspiracy theories that often laced his speeches.

International and regional intelligence agencies had participated in provoking sectarian war by working with "local political forces which were providing political cover for terrorist organizations," he said.

The Kurds, who live mostly in a semi-autonomous region in the north, suspended their participation in the Shia-led government after al-Maliki accused them of harbouring terrorists.

Large-scale evacuation not necessary

Meanwhile, U.S. President Barack Obama said on Thursday the Islamist militant siege of Iraq's Mount Sinjar had been broken and most U.S. military personnel sent to assess the situation would be pulled out of Iraq in coming days.

He told reporters he did not expect the United States to have to stage an evacuation of the mountain, where thousands of members of the Yazidi religious minority had been trapped by militants, or to continue humanitarian airdrops.

"We broke the [Islamic State] siege of Mount Sinjar," Obama said.

"We helped innocent people reach safety and we helped save many innocent lives. Because of these efforts we do not expect there to be an additional operation to evacuate people off the mountain and it's unlikely that we are going to need to continue humanitarian airdrops on the mountain," he said.

Kieran Dwyer, spokesman for the U.N. Office for Coordination of Humanitarian Affairs, said it was too early to declare the crisis over. Improved security had allowed large numbers of Yazidis to escape Mount Sinjar, he said, but "some thousands" still needed help.

"The crisis on the mountain will not be over until everybody is able to come off that mountain to a safe and secure location in a safe and secure manner," Dwyer said. He was speaking to Reuters by telephone from the Kurdish capital Arbil.

Thousands remain at Sinjar

Obama said the majority of military personnel who conducted the assessment of Mount Sinjar would leave Iraq in coming days.

The United States sent 130 military personnel to Arbil to draw up options ranging from a safe corridor for the Yazidis to an airlift to rescue them. A team of fewer than 20 U.S. personnel flew to Mount Sinjar to assess the situation.

The U.S. Defense Department said it believed 4,000-5,000 people remained on the narrow strip of craggy high ground more than 65 kilometres, but said that up to 2,000 of them lived there and may want to stay.

The United Nations said it had raised the humanitarian emergency in Iraq to its highest level, putting it on a par with Syria, South Sudan and the Central African Republic.

Working with local groups, U.N. agencies are providing food, water, shelter and medical care to those who have streamed into Kurdish-controlled territory since June when the Islamic State began its latest offensive.