The move is the latest in a series apparently aimed at reforming the security apparatus and signalling a departure from his predecessor Nuri al-Maliki.
"The commander-in-chief of the armed forces (Abadi) has retired Lieutenant-General Ali Fraiji and replaced him with Abdel Wahab Zabun," defence ministry spokesman Mohammed al-Askari said in a statement.
Fraiji was the commander of Salaheddin, a central Sunni-dominated province that was largely overrun within days of jihadists launching an offensive in Iraq on June 9.
In their advance, fighters from what is now called the Islamic State (IS) group took the city of Tikrit on June 11 and later posted videos of army recruits they claimed had surrendered at the nearby Speicher military base.
According to Human Rights Watch, between 560 and 770 men were executed at five different sites.
Fraiji was blamed for the mass executions, which have come to symbolise what observers say is the federal army's impotence in the face of ruthless jihadists and its inability to protect its own men.
The army, which Washington spent colossal amounts arming and training, completely folded when jihadist-led insurgents swept across the Sunni Arab heartland.
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In its flight, it abandoned a huge arsenal -- including a lot of US-made equipment -- which has made IS a formidable foe.
The general's retirement came two days after Abadi retired Aboud Qanbar, who was acting secretary-general of the defence ministry, and Ali Ghaidan, who was chief commander of ground forces.
Both generals were close allies of Maliki, who critics say is partly to blame for the Iraqi chaos for having enforced sectarian policies that further marginalised the minority Sunnis.
Abadi had also announced he was scrapping the Office of the Commander in Chief that Maliki had controversially created to bypass the interior and defence ministries.
"It is more than just score-settling targeting Maliki's people... Abadi is trying to root out the causes of past failures," said Iraqi analyst Ihsan al-Shammari.
Earlier this week, the Iraqi army suffered another humiliating setback when IS fighters attacked army bases near Fallujah, in the province of Anbar, west of Baghdad.
A senior Iraqi military officer has admitted to 40 deaths in the fighting but IS released a statement on Wednesday giving their account of the attack and claiming they had killed 300.
The jihadists claimed they destroyed four US-made M1 Abrams tanks, 41 Humvees and various other vehicles. They also said they seized two Russian tanks, 14 Humvees, several personnel carriers and hundreds of M16 assault rifles.