Despite fierce opposition from Italians to the Iraq war, Silvio Berlusconi, Italy's prime minister, sent in what was one of the largest contingents in the US-led forces after the overthrow of Saddam Hussein, the Iraqi president, to help with reconstruction and security.
Last September, Italy started pulling troops out in groups of 300. Its contingent once numbered more than 3000.
Antonio Martino, the Italian minister of defence, made troop withdrawal official in an announcement to a parliamentary commission.
Martino said the pullout was being carried out in accord with allies and according to a timetable that allows for Iraq's reconstruction.
In Washington, Scott McClellan, the White House press secretary, said the Bush administration was "well aware of the steps that Italy is taking".
"Italy is doing this all in close consultation with coalition forces."
The withdrawal in tandem with replacement by a civilian force largely mirrored a proposal by Romano Prodi, Italy's former prime minister, a centre-left leader who is challenging Berlusconi in 9 April elections.
Gianfranco Pasquino, a political science professor at the University of Bologna, said Martino's announcement "pulled the rug out from under" the opposition.
Most of Italy's troops, which included paramilitary police, have been based in southern Iraq.
Gradual task transfer
Martino said the first six months of 2006 would see a gradual transfer of tasks from the Italians to the Iraqi defence and security forces.
Martino set a timetable for
the transfer throughout 2006
The Italian forces will be reduced by 300 in January and there will be a further reduction of about 1000 men by the end of June.
"By June 2006, we will have achieved an overall reduction of nearly half of the contingent.
"At the beginning of the second half of the year, around 1600 men will remain."
The last half of 2006 would witness "ever wider civilian cooperation and a corresponding progressive disengagement of the military contingent" until all the Italian soldiers are out.
One of the more centrist in the opposition, Prodi had resisted calls from far left members to campaign on a platform of immediate withdrawal if elected.
The far-left in the opposition accused the government of electoral propaganda with the announcement.
Elettra Deiana, a communist on parliament's defence commission, said Martino "is presenting the election platform of the Berlusconi government".
She demanded that the government recognise the illegitimacy of the war.