This is in an apparent bid to thwart resistance fighters who may have tried to sabotage the step toward "self rule".
In a surprise ceremony on Monday that was finished before it was announced and before ordinary Iraqis were aware of it, Iraq's US governor Paul Bremer handed a letter to Iraqi officials sealing the transfer of powers.
"This is a historic day, a happy day, a day that all Iraqis have been looking forward to," Iraqi President Ghazi al-Yawir told the ceremony, which began at 10:26am (06:26 GMT), in the heavily guarded Green Zone. "This is the time when we take the country back into the international community."
Bremer left the country hours after the handover. A source said he, and several of his staff, had left Iraq. There was no information on where they were headed.
News of the surprise move first emerged at the start of a NATO summit in Istanbul, when Iraqi interim Foreign Minister Hushiar Zibari told journalists that the transfer of authority was being brought forward and that he welcomed the commitment of NATO countries to help train the Iraqi forces struggling against the resistance.
He was speaking after talks with UK Prime Minister Tony Blair and his comments are seen as having come ahead of an official announcement.
"We are very pleased here, we are confident, and we are ready to take up our responsibility - even before 30 June," Zibari was quoted as saying.
Iraqi FM Hushiar Zibari first
alerted to the early handover
"I believe today we will challenge those elements in Iraq - the terrorists, the criminals, the Saddamists, the anti-democratic forces - by bringing the date of the handover of sovereignty even before 30 June, as a sign that we are ready for the job."
Zibari did not say exactly when the handover would take place, but added it was expected to happen swiftly.
Asked about the move, the BBC reports that Blair told reporters: "I'm not actually in a position right at this moment to confirm that..."
In Iraq, interim Prime Minister Iyad Allawi reportedly said he requested that the "sovereignty" be transferred earlier, reflecting a preference to have Iraqis control their own country as soon as possible.
"We have been laying down strategies for protecting our people," Allawi said after the ceremony, adding that he would spell out details at a news conference later.
Critical of the early handover, editor of the London-based al-Quds al-Arabi newspaper, Abd al-Bari Atwan, said: "The Iraqis have been shortchanged."
"It will not make any difference ... why is Blair and Bush not there?" he asked. "Where are the celebrations?"
"Why is Blair and Bush not there? Where are the celebrations. They wanted to have the show as soon as possible ... so everybody can go home"
Abd al-Bari Atwan,
editor, Al-Quds Al-Arabi newspaper
It is clear, Atwan added, that the the occupation is afraid of attacks. "If the Iraqi police cannot protect their own stations, how are they to protect on a day of ceremony like this?"
"They wanted to have the show as soon as possible ... so everybody can go home," he stated.
This, Atwan added, will be seen "as a victory for the resistance".
"They will rejoice. It is clear the coalition forces are not in power. This will be seen as a sign of weakness by the coalition."
He also said he did not think the early handover of authority would weaken the resistance. "We should expect an escalation of violence."
The interim government, Atwan added, is "seen as a stooge of the coalition forces".
Commenting on the offer of training of Iraqi forces by NATO countries, Atwan questioned why the troops were not trained months ago already, when the occupation began.
"It showed that countries such as Germany and other forces did not want to go to Iraq and have their forces killed."
Iraqi authorities say security
is a major priority
NATO, he added, "was not confident the situation was safe to send troops to Iraq".
With the transfer, the Iraqis now face the daunting task of securing law and order with the help of about 135,000 US troops and about 20,000 more from other coalition countries.
Speaking to the BBC, interim Iraqi Deputy Foreign Minister Hamid al-Bayati said: "I think it was a surprise move for everybody, including those enemies of the Iraqi people."
He said the immediate priority for the interim government will be "security issues", because "without security, there will be no stability, no political process, no economy..."
Iraqi Prime Minister Iyad Allawi and President Ghazi al-Yawir were formally sworn in on Monday at a ceremony to formalise the interim government that had been handed power earlier in the day.
The rest of the government were also sworn in at the ceremony, taking an oath before a senior Iraqi judge.
Last Thursday, the occupation authority transferred the final 11 of the 26 government ministries to full Iraqi control, meaning Iraqis were handling the day-to-day operations of the interim administration.