Abadi, who led the country in the four-year war against Daesh, stated his intention of creating a cross-sectarian block called "the victory alliance" to contest the parliamentary elections, with candidates from other communities.
The alliance would aim to unify the country after a recent victory over "Islamic State" (IS) militants.
Al-Abadi's main challenger is expected to be Nouri al-Maliki, who served as prime minister for eight years before stepping aside in 2014.
Abadi is credited for quickly rebuilding the army and defeating ISIL in its main Iraqi stronghold, Mosul, last July, with strong assistance from a US -led coalition.
In a statement, the Prime Ministry's press office said: "PM Abadi forms the Victory Coalition, calling on political groups to join this supra-sectarian national coalition". Al-Maliki, who now serves as one of three vice presidents, was widely accused of pursuing sectarian policies that alienated the country's Sunni minority, leading many Sunnis to initially welcome IS as liberators.
Al-Maliki, who is the head of the Shi'ite Dawa party, announced on Saturday he will be running in the elections.
Abadi is a Dawa member but he didn't secure Maliki's endorsement for his candidacy.
In response, the Dawa party said its supporters could choose between the two coalitions.
The prime minister had put forward the proposal for the formation of a big coalition of major Shiite, Sunni and Kurdish parties to make plans for the political future of Iraq.
Abadi revealed his "Nasr al-Iraq" alliance would present itself at the spring elections, Arabic for "Victory for Iraq".
Sunni leaders have called for the vote to be delayed to allow the more than 3 million people displaced by fighting in the region to return home, but al-Abadi's government has insisted the elections be held on time.