Iraq's new interim president, Ghazi al-Yawir, who is currently in Washington, said on Tuesday: "It means full sovereignty for Iraq. It means a new age in hopefully a very pleasant Iraqi history."
Tuesday's vote by the 15-nation council endorsed a "sovereign" interim Iraqi government and said the country's new leaders had the right to order the international troops to leave at any time.
The resolution makes clear the mandate of the multinational force commanded by the US would expire, in any case, by the end of January 2006.
"The significance of this resolution ... is to take away the concept of occupation, which I would say was the main reason for many of the difficulties that we have been going through since liberation," Iraqi Foreign Minister Hoshiar Zibari said in New York.
The resolution attempts to pave the way for democracy by giving a timetable for elections - not later than 31 January 2005.
It puts Iraq in charge of its oil proceeds and calls for the United Nations to help with elections, a constitution and many other tasks.
Control of the 160,000 US-led troops was the most contentious issue in the resolution, which authorises a multinational force under American command to "use all necessary measures" to prevent violence.
The United States pledged "partnership" and coordination with Iraq's leaders but did not agree to give Baghdad a virtual veto over major military offensives as France, Germany, Algeria and others had wanted.
However, the resolution gives the Iraqi interim government the right to order US troops to leave at any time and makes clear the mandate of the international force would expire by the end of January 2006.