The US military on Thursday said Bush ordered the demotion of Brigadier-General Janis Karpinski, the former commander of Abu Ghraib prison, over the abuse scandal.
The army said in a statement that Karpinski had been found guilty of dereliction of duty and shoplifting.
"Today, the president approved a recommendation to vacate the promotion of Brigadier-General Karpinski from her rank of brigadier-general," the army said.
"This decision reduces her to the rank of colonel in the US Army Reserve."
Karpinski was arrested for shoplifting at a US Air Force base in the United States but failed to report it to her superiors or on official forms that asked if she had ever been arrested.
The Abu Ghraib prison abuse
scandal shocked the world
The army's inspector-general also substantiated allegations
against her of dereliction of duty, the army said, citing leadership failures rather than specific actions that contributed to the abuse at the prison.
"Though Brigadier-General Karpinski's performance of duty was found to be seriously lacking, the investigation determined that no action or lack of action on her part contributed specifically to the abuse of detainees at Abu Ghraib," the army said.
Karpinski commanded the Abu Ghraib prison during the period in late 2003 and early 2004 when military guards were photographed abusing and sexually humiliating Iraqi prisoners.
She has said she had no knowledge of the abuse and insisted she was being made a scapegoat to protect people higher up.