"The role of the coalition forces [in the Green Zone] will be secondary, centred on training Baghdad brigade troops to use equipment to detect explosives and advising Iraqi forces," Qassim Moussawi, a spokesman of Iraqi forces in Baghdad, said.
Under the security agreement US forces across Iraq remain under US command but operations must be authorised by a joint US-Iraqi committee.
The pact gives US troops three years to leave the country, revokes their power to detain Iraqis without an Iraqi warrant, and subjects contractors and off-duty US troops to Iraqi law.
Other US-allied troops, including 4,100 British personnel, are to leave Iraq by July.
This also means that some 15,000 prisoners held at US military detention camps must now be charged with crimes under Iraqi law or, according to the security pact, gradually released.
Al Jazeera's Omar al-Saleh says prisoners and human rights groups however have warned that the move may not ensure the detainees' safety due to many violations in Iraqi prisons.
Despite the shift in power, many Iraqis still resent what they see as a US military occupation.
Majid Mola, an engineer, said the handover of control was meaningless because people were desperate for basic services, jobs and lasting peace.
"Where are the government services? Where is the electricity? People want practical things," he said.