The UN mission, which numbered 11,000 troops and civilians when first authorised, is expected to decline to around 130 administrators, police and military advisers.
For the past year there have been about 450 peacekeepers in the country. "They have been leaving over the last few days and all will be gone today," a UN spokeswoman in the East Timor capital Dili said on Friday.
She said security remained an issue in the country but added "there was more importance placed on the need to train and transfer knowledge to the police and border patrol units".
The peacekeeping mission will be replaced by the United Nations Office in Timor-Leste, or UNOTIL, which will operate until 20 May 2006, a UN statement said.
It will include 45 civilian advisers, 60 police advisers, 15 military advisers and 10 human rights officers.
The pullout of the last peacekeepers coincides with a visit to Jakarta by a team of UN legal experts who have started an inquiry into the 1999 bloodshed as well as Jakarta's accounting for the violence.
Mainly Catholic East Timor became independent in May 2002 after two and a half years of UN administration, closing the book on centuries of Portuguese colonial rule and 24 years of occupation by Indonesia, the world's most populous Muslim nation.
The UN stepped in to run the territory after the Timorese voted overwhelmingly in August 1999 to break free of Jakarta.
The referendum result prompted a rampage by gangs backed by the Indonesian military that killed more than 1000 people.
The United States has been leading calls at the UN to end the mission in East Timor.
Washington, which pays more than a quarter of UN peacekeeping costs, said in February that East Timor was no longer an international security threat requiring peacekeepers.
But East Timor Prime Minister Mari Alkatiri asked UN Secretary-General Kofi Annan and Security Council members for one more year of UN help.
Annan warned the council that a hasty withdrawal could jeopardise the investment made by the international community to help the Timorese build their country.