Mr Howard has faced a week of sustained pressure in parliament about Australia's troop commitment to Iraq, with the opposition Labor party mounting an attack on the government's policy on keeping troops there.
“If the coalition were to leave Iraq now we would deliver an enormous victory to the terrorists and that would resonate not only throughout the Middle East but it would resonate throughout South East Asia,” Mr Howard told ABC’s 7:30 Report.
He said a withdrawal would strengthen the al-Qaeda-linked Asian network Jemmah Islamiah.
“It would be used as a recruiting weapon by Jemaah Islamiah in Indonesia. They would say to the young Indonesians who are tempted to join them, ‘We drove the Americans and the British out of Iraq … they don't have courage to stand and support a democratic Iraq. Why don't you join us?’,”
The opposition, which wants Australian soldiers withdrawn, and the government have accused each other of maintaining policies which will deliver victory to terrorists.
Mr Howard also said he had not weakened his stance on Iraq, insisting he remained "rock solid" in his ambition for long-term democracy in the country.
"I think we should give a lot more credit to the willingness of the Iraqi people to vote on three occasions to establish a democracy in their country," the prime minister said.
The government played down comments by Britain's army chief, General Richard Dannatt, that troops should be withdrawn soon because the presence of coalition forces in Iraq war was exacerbating the country's security problems.
General Dannatt also said the coalition should have a "lower ambition" in its bid to establish a liberal democracy in Iraq.
But Mr Howard said he would not downgrade his expectations for democracy in the country, saying Iraqis should be given greater credit for risking their lives to vote for a new government.
"We take for granted the right to go to a polling booth without being shot at. The Iraqis can't do that.
"And on three separate occasions, in their millions with growing percentages, they have done that, and I don't think we give enough credit for that."
Mr Howard has refused to put a timetable on Australia's troop commitment but said it would not be open-ended.
Australia's former defence chief Peter Cosgrove has echoed Mr
Howard's warning, saying walking away from Iraq would result in a return to violence rivalling that of Saddam Hussein's reign.
"Literally, we stand between the Iraqi people and a return to a level of violence which would rival that which Saddam Hussein visited on them over decades of his cruel regime," General Cosgrove said, in comments published in News Ltd newspapers.
"We would be handing global terrorism a major win."
Iraq’s Oil Minister Hussain al-Shahristani, visiting Australia, yesterday predicted Baghdad's own forces may be able to handle security by the end of next year.