Denmark will withdraw its troops from Iraq by August, Prime Minister Anders Fogh Rasmussen has said.
Danish troops will be replaced by a small aerial surveillance unit
The troops, numbering about 460, will be replaced by a unit of about 50 soldiers manning four observational helicopters, he said.
It comes as Tony Blair announced a timetable for reducing British troop numbers in Iraq from 7,100 to 5,500.
Most Danish troops are based in the southern city of Basra, where they operate under British command.
The mandate for Danish troops to serve in Iraq is due to expire in June.
Waning public support
Mr Rasmussen said the decision to pull out was taken after consultation with the Iraqi government and the British.
"We expect that the Iraqis during 2007 will take over security in southern Iraq," she said.
UK - 7,100
South Korea - 3,200
Poland - 900
Georgia - 800-850
Australia - 900
Romania - 600-865
Denmark - 460
El Salvador - 380
Bulgaria - 150
Sources: Brookings Institution; Globalsecurity.org; media reports
Five Danish soldiers have been killed in Iraq since the conflict began in 2003.
Denmark was one of the original countries involved in the coalition.
There was general public support for the initial invasion, reports the BBC's Julian Isherwood in Copenhagen, but backing for the war is now at its lowest level.
A recent poll showed 64% of Danes thought it completely or predominantly wrong for Denmark to continue to have troops in Iraq.
Mr Rasmussen said the withdrawal from Iraq would enable Denmark to increase its troop deployment to Afghanistan.
He said no final decision had been taken, but the country's troop deployment could rise from 400 to 600.
"We are favourable to sending more troops to Afghanistan... because it is essential that Nato wins its battle against the Taleban," he said.
Most Danish troops in Afghanistan are under UK command in southern Helmand province.