Romano Prodi has said the war in Iraq was a "grave error" in his first speech to Italy's Senate as prime minister.
Mr Prodi has criticised the war in Iraq before
"It is the intention of this government to propose to parliament the return of our troops from Iraq," he said.
The previous government of centre-right PM Silvio Berlusconi had decided to withdraw Italy's 2,600 troops from Iraq by the end of 2006.
Mr Prodi, whose centre-left bloc beat Mr Berlusconi in April's elections, did not confirm that deadline.
The new cabinet was sworn in on Wednesday.
The BBC's David Willey in Rome says Mr Prodi's comments on the Iraq war caused uproar among opposition politicians in the upper house.
"We consider the war and occupation in Iraq a grave error that hasn't solved - but has complicated - the problem of security," Mr Prodi said.
"It is therefore the government's intention to propose to parliament the withdrawal of our troops, even if we are proud of the display of professional ability, courage and humanity they have been giving."
Mr Prodi was shouted down by cries of "shame" from right-wing opposition MPs and it took several minutes to restore order.
Mr Prodi gave no date for the withdrawal and said a technical time frame would have to be worked out with the Iraqi authorities and with the UK and United States.
He said his government condemned international terrorism, but he also warned against "fundamentalism" in Western reactions.
His government was convinced that "the fight against terrorism must be conducted with political and intelligence tools and opposition to terrorist organisations - without ever restricting either our freedoms or our rights".
He added that most importantly, the international community should not be "indulgent to suggestions of fundamentalism of the opposing strain, which preach crusades and indiscriminately advocate clashes of civilisations."
Mr Prodi said Italy needed a social, economic and moral jolt to mark a clean break with the past.
He said there was a climate of tolerance towards unethical if not downright illegal behaviour in Italy, marked by huge conflicts of interest and shameless enrichment.
He said his coalition was ready to govern Italy for the next five years, in order to carry out their objectives.
These include tackling economic stagnation and cancelling constitutional changes carried out by Mr Berlusconi's government.
The Senate will hold a vote of confidence in Mr Prodi and his cabinet on Friday.