Panamanian President Ernesto Perez Balladares attended a ceremony at the Fort Clayton base at which the US flag was lowered for the last time.

The ceremony ended the presence in Panama of the US Army South.

A small contingent of US troops will remain in a caretaker capacity, but under a treaty agreed in 1977, the last soldier must leave by the end of this year.

The US military presence began as an operation to secure control of the Panama Canal, but developed into a base for projecting Washington's influence across Central and South America.

The BBC Central Americas correspondent says the withdrawal brings new independence for Panamanians, but some US politicians have warned it may offer new opportunities to drug traffickers in the region.

The 1977 treaty, signed by President Jimmy Carter and General Omar Torrijos, says all US troops must leave the country by 31 December and hand over control of the Panama Canal.

Most of the remaining troops, who number less than 1,000, are based at Corozal, an installation near the Pacific entrance of the Panama Canal.

During World War II the US population in Panama peaked at 65,000 soldiers and tens of thousands of civilian employees.

They lived in the former Panama Canal Zone, a 10-mile (16km) stretch of land on either side of the canal.