The transitional force would train Iraqi security forces, conduct targeted "anti-terror" missions and protect civilian efforts and leave at the end of 2011 as mandated in a previous Iraq-US agreement known as the Status of Forces Agreement (Sofa) forged by George Bush, Obama's predecessor, he said.
"I intend to remove all US troops from Iraq by the end of 2011. We will complete this transition to Iraqi responsibility, and we will bring our troops home with the honour that they have earned," he said.
Obama also assured Iraqis that the US "pursues no claim" on the country's territory or resources, responding to Iraqi fears about continuing US troop presence in the nation.
"We respect your sovereignty and the tremendous sacrifices you have made for your country [and] we seek a full transition to Iraqi responsibility for the security of your country," he said.
The US president also said that while Iraq's neighbours had not always aided the nation's security the US was willing to pursue "principled and sustained engagement" with all nations in the region including Iran and Syria.
However Obama said that the future of the country was ultimately in the hands of the Iraqis themselves.
"The most important decisions that have to be made about Iraq's future must now be made by Iraqis," he said.
Saleh al-Mutlaq, leader of the second-largest Sunni bloc in the Iraqi parliament, told Al Jazeera he was pleased with the announcement but that the US needed to withdraw from Iraq in a responsible way.
"I appreciate what Mr Obama said but we hope this withdrawal will be a responsible withdrawal."
"To withdraw troops and leave Iraq in chaos would affect the reputation of the US in the world."
Marwan Bishara, Al Jazeera's senior political analyst, says that Iraq remains a fragile country with there is a power struggle below the surface and it remains to be seen how the US will deal with Iran and other regional players.
Senior Obama administration officials also told AP on Friday that, of the roughly 100,000 US combat troops to be pulled out of Iraq over the next 18 months, most will remain in the war zone until least the end of this year to ensure national elections due to be held provisionally in December this year go smoothly.
|Violence has abated in Iraq but
attacks still continue [AFP]
The maintenance of a residual force for a period of time in the country does not come as a surprise, but some in Obama's own party had questioned the size of it.
"When they talk about 50,000, that's a little higher number than I had anticipated," Harry Reid, the senate majority leader, said.
Some Republicans criticised the announcement, with John Boehner, the House Republican leader, saying that while such proposals may have sounded good during the election campaign "I do think it's important we listen to those commanders and our diplomats who are there to understand how fragile the situation is".
There are currently about 142,000 US troops stationed in Iraq.
More than 4,250 US military members have died since the war began in March 2003, though US military deaths plunged by two-thirds in 2008 from the previous year.
Some analysts have attributed the fall in casualties to improving security after a troop build-up, or so-called surge, in 2007.