Abadi on Saturday declared victory in Iraq's three-year war to expel the terrorist group that at its height endangered the country's very existence, AFP reported.
Iraqi army units marched through the main square in central Baghdad as helicopters and fighter jets flew overhead, witnesses said.
The parade was not broadcast live and only state media were allowed to attend.
Abadi had declared Sunday a public holiday after making his announcement, in which he said Iraq had defeated the terrorists "through our unity and our determination".
ISIL seized control of large parts of Iraq and neighboring Syria in 2014, declaring a cross-border "caliphate" and committing widespread atrocities.
Iraqi forces gradually retook control of all territory lost to the group over the last three years. Experts warn that ISIL remains a threat, with the capacity as an insurgent group to carry out high-casualty bomb attacks using sleeper cells.