The withdrawal of British troops from the southern Iraqi city of Basra is not a defeat, Gordon Brown has insisted.
The 550 soldiers have handed Basra Palace over to Iraqi control and joined 5,000 troops at the UK's last base, near the airport, outside the city.
The Ministry of Defence said the handover of Basra province was now due in the autumn.
The prime minister said the withdrawal was "pre-planned and organised" and UK forces would take an "overwatch" role.
This will mean troops cannot go out unless requested by Iraqi authorities, but they will still train and mentor Iraqi security forces.
The PM told the BBC's Today programme that the number of British troops in Iraq would remain roughly the same, and that they could "re-intervene" if necessary.
He promised that they would continue to "discharge our duties to the Iraqi people and the international community".
A Downing Street spokesman added the withdrawal was part of the ongoing process of handing over to Iraqi security forces.
He would not confirm this would mean an overall reduction in the number of troops in Iraq, saying this would "depend on the assessment of commanders on the ground over the coming weeks and months".
British troops started pulling out of Basra Palace in southern Iraq on Sunday night, and the MoD confirmed the withdrawal was complete on Monday.
It added in a statement said: "Handing over Basra Palace to the Iraqi authorities has long been our intention, as we have stated publicly on numerous occasions."
Maj Mike Shearer, British spokesman in Basra, said a bugler from Four Rifles led the advance at 0100 local time.
He added: "There were no major incidents during the operation and all troops were back at the continuing operating base by midday today Iraqi time."
The MoD said UK forces would now operate from their base at Basra Air Station and "retain security responsibility" for Basra until the full handover. The military will continue to train Iraqi troops.
Foreign Secretary David Miliband said: "Our decisions in Basra reflect the situation on the ground, above all the growing capacity of the Iraqi security forces, and are signed off by the coalition and the Iraqi government."
The head of Iraqi security forces in Basra province, General Mohan Tahir, gave details of the withdrawal at his first news conference in the city.
He said Iraqi troops were now in control of Basra Palace.
BBC correspondent Richard Galpin in Baghdad said this was a "highly symbolic moment, marking the end of Britain's physical military presence in any Iraqi city".
The Iraqi flag was raised during the handover by UK troops
Over the past year British forces have handed over control of three Iraqi southern provinces, with only Basra province remaining under their control.
The security situation in the city will be watched closely, as there are concerns rival Shia factions could vie for control.
Former Foreign Office official Rory Stewart, who served as deputy governor of two southern Iraqi provinces from 2003 to 2004, told the BBC's Have Your Say programme that "we simply do not have any control over southern Iraq and that has been the situation in my mind for about two-and-a-half years now".
The Liberal Democrat leader, Sir Menzies Campbell, told BBC News 24 he thought the pull-out marked the end of British troops' role in Iraq.
He said: "It's an admission that the sort of role which has been performed from Basra Palace is no longer effective.
"I see this as a necessary step towards what I believe to be the withdrawal which would be in the interests of British forces."
Shadow Defence Secretary Liam Fox said the forces' families would want to know every possible precaution had been taken to maximise the troops' safety during this period.
"Our troops must not be put at needless risk to satisfy the political needs of Gordon Brown's government. Any moves must be based upon the military reality on the ground," he said.