The US military announced on Saturday that the officer will not not face a full court martial.
"While his crimes could merit a court martial, mitigating factors involved were considered, including the stressful environment our leaders and soldiers face daily," the US Army's 4th Infantry Division (ID) said in a statement.
During a hearing last month Lieutenant-Colonel Allen West admitted to firing a gun near the man's head, allowing soldiers to beat the detainee, and threatening him but said he did so for the safety of the troops he commanded.
The 4th ID's commander, Major-General Raymond Odierno on Friday evening fined West $2500 a month from his salary for two months. The General also relieved West of overseeing 700 troops on his command and forwarded his request to retire in the spring of 2004.
West, the most senior officer reported to have faced a military judicial hearing in Iraq, was found guilty on three counts of
aggravated assault and one count of communicating a threat during interrogation of a detainee on August 20 in Taji, near Baghdad.
"The incident reflects a brief lapse in judgment by an officer with an otherwise good record and performance," the statement said, adding that West had "disobeyed laws, ignored orders, and disregarded values for which we fight."
"Frustration and anger overcame his professional ethics and personal values, and he performed what he knew to be illegal and immoral acts," the statement said.
During his hearing on November 19, West said he was trying at the time to get information about an alleged plot to kill him and some of the men he commanded. West believed the detainee, Yahya Jhodri Hamoody, was involved in the plot.