Japanese Prime Minister Junichiro Koizumi officially announced the withdrawal of about 600 ground troops from southern Iraq, a move that had been widely expected.
The Japanese defence chief, Fukushiro Nukaga, added that the pullout would take "several dozen days" and the decision had been made in consultation with Japan's allies.
It effectively ends Tokyo's first mission to a country at war since World War II.
Australians head for border
About 460 Australian soldiers have been guarding the Japanese contingent in Al Muthanna province while Japanese troops built infrastructure such as schools and purified water.
Australia's Defence Minister, Brendan Nelson, said his nation’s troops would be transferred to new duties at the major coalition base of Tallil, near the city of Nasiriyah.
"In this new phase of operations our soldiers will be doing very important work. They will be training and mentoring Iraqi soldiers. They will be supporting border protection activities, particularly on the Syrian border," Mr Nelson said.
However, he said that did not mean Australian troops would be operating along the dangerous Syrian border area.
At the same time Mr Nelson warned that terrorists might choose to target the Muthanna region because of its transition to Iraqi government control.
Mr Howard has described the redeployment as a "sensible next step."
”Bring them home”: Brown
The Australian government’s announcement has already sparked demands to bring the troops home.
"They should be brought home right now," said Australian Greens leader Bob Brown. "Moving them from one province to a less safe province is not a good thing to do."
Public opposition in Australia to the US-led offensive in Iraq remains widespread and the government’s latest decision is seen as a politically sensitive one.
However, Australia has suffered only one death in Iraq which pales in comparison to the mounting toll of the US and British forces.
The new mission though is more dangerous with Australian troops to be deployed near the volatile city of Nasiriyah, where roadside bombings by insurgents are common.
Thirty-one Italian soldiers stationed in Nasiriyah have been killed and Rome plans to withdraw its contingent, once the fourth largest in Iraq, by the end of the year.
Iraqi takeover
Iraq’s Prime Minister, Nuri al-Maliki, said that Iraqi forces will take full responbsibility for security within Muthanna province within weeks.
"We have a plan to transfer security from coalition troops to local forces and the first governorate where it will take place is the province of Al-Muthanna next month," Mr Maliki said.
British stay in Iraq
British Prime Minister Tony Blair's spokesman hailed Mr Maliki's announcement as a "significant step."
But said the handover would not mean that British soldiers deployed in the province would return home.
On an unannounced visit to Baghdad on Monday, British Defence Minister Des Browne called for a major security crackdown in Basra, Iraq's main southern city, along the lines of a similar operation under way in the capital.
"That new security plan has a long-term aim to hand over security to Iraqi army and police, accepting that there have to be reforms -- particularly to the aspect of the police service," Mr Browne said.
About 8,000 British troops are currently deployed in southern Iraq, most of them in Basra which has seen mounting unrest in recent weeks, much of it blamed on Shiite militiamen that have infiltrated the police force.
Latest violence
Insurgent attacks have continued in the capital, Baghdad with four people killed and eight wounded when a car bomb targeting an Iraqi army patrol exploded in the Al-Waziriyah neighborhood.
Three others, including a police commando, were later killed in another car bomb aimed at a police patrol in western Baghdad.
In the town of Mahmudiya, south of the capital, three people were killed and 23 wounded when an explosive device blew up in a busy market.
Elsewhere in Iraq, at least 13 people were killed in a string of attacks, including the deputy police chief of the former rebel stronghold of Fallujah in the Sunni Arab province of Al-Anbar, west of Baghdad.
The US military said seven of its servicemen were wounded in a wide search operation for two soldiers who disappeared Friday after they came under attack in the town of Yusifiyah, south of Baghdad. One soldier was killed in the attack.
A statement posted on the Internet in the name of an Al-Qaeda-led militant alliance said it was holding the missing soldiers.