Spokeswoman Boglar Laszlo on Wednesday said: "On 31 March, Hungarian troops will come back from Iraq... This is the proposal the government will put forward to parliament."
A formal announcement on legislation authorising the withdrawal would be made at a news conference later in the day, she added.
State news agency MTI quoted Gyurcsany as saying: "To stay there until elections are completed is an obligation, to stay there for much longer is an impossibility. Therefore, we will bring back our soldiers back from Iraq by 31 March 2005."
Gyurcsany made the initial remarks at a ceremony to celebrate the end of 136 years of conscription in Hungary, and on the day US President George Bush's campaign declared election victory and a second term in office.
"Troops will remain until conditions have been created for democratic elections in Iraq," Laszlo said.
Hungary's 300 soldiers in Iraq are not front line fighting troops, but a support transport battalion. The mandate for their presence in Iraq was to finish at the end of this year.
"If we decide to stay we would create serious domestic political conflict since most people would disagree"
Hungarian defence minister
The issue had become a political liability for the ruling Socialist Party, which in August dumped former prime minister Peter Medgyessy in favour of 43-year-old millionaire Gyurcsany.
Defence Minister Ferenc Juhasz admitted last week that the socialist coalition would face an uphill battle having the mandate extended as the conservative opposition has urged the withdrawal of the troops.
Juhasz said it would be all the more difficult as most Hungarians also oppose the troop presence in Iraq.
"If we decide to stay we would create serious domestic political conflict since most people would disagree," he said.
More Dutch troops
Meanwhile, in the Dutch capital Amsterdam, the country's defence ministry said on Wednesday it was sending its fifth contingent of 1,350 soldiers to Iraq on Friday.
That would be its final military contribution to stabilising the country, it added.
The latest Dutch contingent
will be the last
Stabilisation Force Iraq 5 (SFIR 5) would be in southern Iraq from mid-November to March 2005 to contribute to stabilising the area and overseeing Iraqi elections in mid-January, the ministry said in a statement.
The Netherlands backed the US-led invasion of Iraq and has been sending troops there since August 2003, although Dutch public opinion is divided.
"SFIR 5 is the last Dutch contribution to the stabilisation force. This mission will end the Dutch contribution," the statement said.
Two Dutch soldiers lost their lives in Iraq, one in May and one in August, while a commander was flown back to the Netherlands pending a probe and legal proceedings following a shooting incident in which an Iraqi civilian was killed.