Ten soldiers left their base for neighbouring Kuwait on Friday, said Manila. The force's commander, Brigadier-General Jovito Palparan, was to follow late in the day.
On Thursday, the captors of Filipino truck driver Angelo de la Cruz gave Manila until 20 July - one month ahead of their scheduled pullout - to withdraw its 51-member contingent or it would behead the father of eight.
The Philippines troops were mostly based in Hilla in south-central Iraq. Eight are thought to be on leave and already back in the Philippines.
Manila's move is another blow to Washington, which has lost another ally in Iraq. Spain and several Latin American countries pulled their troops out after a deadly Madrid train bombings in March.
Thailand also announced Friday it has started the withdrawal of its 451 troops from Iraq at the end of their deployment, ignoring an appeal by United Nations Secretary-General Kofi Annan to delay the pullout.
The US has accused Arroyo (R) of
caving in to "terrorism"
Philippines President Gloria Arroyo has been a steadfast Asian ally of the US and strong supporter of Washington's so-called "war on terror".
"It's disappointing to see a decision that sends the wrong signal to terrorists," White House spokesman Scott McCellan said in Washington. The US is a main source of military aid to the Philippines.
Australia also had harsh words for Manila. Australian Prime Minister John Howard said the move would not give the Philippines immunity from "attacks."
Analysts said Arroyo had taken the risk of angering Manila's allies because of intense domestic pressure to save de la Cruz's life.
Threats to the lives of overseas Filipino workers was a highly emotion issue because of the large number of workers who have been "brought home dead" because of employer abuse and workplace accidents, said Philippines political analyst Noel Morada.