Abdul Mahdi will now remain as caretaker until a new prime minister is chosen - a process that in the past has dragged on for months.
Abdul Mahdi was thrust into the job a little over a year ago after inconclusive elections led to weeks of political deadlock.
At the time, he was seen as the compromise candidate of Muqtada al-Sadr, a populist Shia leader heading parliament's largest bloc, and Hadi al-Amiri, who leads a coalition of Iranian-backed militias known as Hashd al-Shaabi, or Popular Mobilisation Forces (PMF) as well as the Fatah parliamentary bloc.
Iraq's ethnic Kurdish parties also supported him.
Abdul Mahdi inherited a country reeling from a devastating war against the Islamic State in Iraq and Levant (ISIL or ISIS) armed group, which in 2014 controlled one third of Iraqi territory.
Even though ISIL was eventually defeated in 2017, the country's infrastructure had been largely laid to waste after decades of near-constant conflict, including a United States-led invasion, and international sanctions.
Iraq parliament approves PM Adel Abdul Mahdi's resignation
For decades, Iraq was a one-party state ruled with an iron fist by Saddam Hussein's Baath party.
This changed after the US-led invasion in 2003 that toppled Hussein and the subsequent establishment of a political system that divided government branches and top official positions using a quota system based on ethnic and religious affiliations.
But for many Iraqis, this system allowed certain individuals and groups to steadily enrich themselves and expand their influence - while much of the oil-rich country's population continued to endure severe economic hardship and low living standards.
For two months now, anger over unemployment, poor public services and rampant corruption has prompted tens of thousands of people in Baghdad and across southern Iraq to pour onto the streets, directing their ire not only at the government but the entire political class.
The outburst of indignation has been met with a harsh response by the security forces, who have been found to have used excessive force and live fire to quell the demonstrations.
Iraq protests: How tuk-tuk became symbol of resistance (2:01)
At the start of the unrest, Abdul Mahdi said there was "no magic solution" to Iraq's problems, adding that progress would require time.
He later moved to assuage demonstrators by offering a range of concessions, including a cabinet reshuffle and a reform package.
The measures, however, failed to appease protesters.
"Iraqis are demanding the end of the current sectarian and ethnic-based political system that was established by the US occupation forces after they invaded Iraq," said Liqa Makki, an Iraqi political analyst.
Makki argued that Abdul Mahdi might be a product of the post-2003 political system but he should not be held responsible for all of Iraq's woes, given his short time in office.
However, Makki said the prime minister had failed to both improve the Iraqi economy and "rein in" the powerful PMF, which have extensive influence in the country's politics.
Iraq PM resignation would only be 'first step', protesters say
Abdul Mahdi's resignation appears certain to end his five-decade political career that in recent years saw him holding several ministerial jobs and the post of vice presidency.
But despite this experience, Muhanad Seloom, an assistant professor of security studies at the Doha Institute for Graduate Studies, said Abdul Mahdi still "lacked the governing and statesmanship skills necessary to rule a diverse and unstable country like Iraq, especially in the post-war years".
Seloom described him as an inherently weak leader due to being a compromise prime minister without having his own parliamentary bloc to support him.
Therefore, "he was doomed to fail", Seloom said.
Although Abdul Mahdi's departure is unlikely to usher in a new political system, as many demonstrators demand, "his resignation, especially after the killing of scores of Iraqi protesters, will cast him as individually responsible for the failures of the entire Iraqi governing system," said Ihsan al-Shammri, the head of the Center for Political Thought and Studies, a think-tank based in Baghdad.
"But that's not entirely the case," he added.
"Abdul Mahdi is a casualty of the same dysfunctional political system that brought him to power in the first place."
Follow Ali Younes on Twitter: @ali_reports