He first declared the ceasefire in December, renewed it twice for two months in January and in March to allow for time for peace negotiations.
"Today I announce an indefinite truce. It is not the end of the war, but it is the beginning of the end," Dhlakama, whose Renamo party is the main opposition in the country, told journalists.
"This is great news for the people of Mozambique," he said, speaking from his hideout in central Mozambique at a news briefing transmitted to the media assembled at Renamo headquarters in the capital Maputo.
Dhlakama had retreated in October 2015 to the central Gorongosa mountain range with 800 former fighters demanding a greater share of power.
His former rebel fighters -- who waged a bloody 1976-1992 civil war that claimed one million lives -- took up arms again in 2013 against the ruling Frelimo party, accusing its leaders of enriching themselves at the expense of the southern African country.
The fighting had often focused on the country's main roads, with Renamo attacking government convoys and civilian vehicles, and soldiers accused of ruthlessly targeting suspected rebels in nearby villagers.
The violence sent thousands of people fleeing to government-run camps, relatives' homes or across the border to Malawi and Zimbabwe.
Dhlakama first declared a ceasefire in December, and renewed it twice for two months in January and in March to allow time for peace negotiations with the government.
In February President Filipe Nyusi announced a new round of peace talks, but minus the international mediators who had previously been involved in the process in 2016.
Apart from a few isolated incidents, the truce has generally held since Christmas eve.
Dhlakama on Thursday admitted there was "no political agreement yet" to mark the end of the war.
But he stressed the importance of the truce.
"An open-ended truce means that there is no more shooting, that people can move freely, that investors -- if still scared -- can return," he said.
He was optimistic that government would soon pull out its troops from the centre of the country where they had been deployed.
"Government is committed to the complete withdrawal from all its military positions in Gorongosa region," he said, adding that by June all government soldiers would have returned to their base camps.
Dhlakama however did not say when he would return from his hideout.
Renamo and the government had previously signed a ceasefire on the eve of the October 2014 general elections.
But then Renamo refused to accept the results of the poll when it was beaten once again at the ballot box by Frelimo, the ex-Marxist party, which has been in power since the former Portuguese colony's independence 40 years ago.
Renamo spokesman Antonio Muchanga, said the latest truce would help speed up the negotiations towards a definitive end of the conflict, expressing the hope that "by the end of this year everything will be resolved".
Mozambique ranks among the eight poorest countries in the world.