Iraq's national security adviser, Mowaffak al-Rubaie, said Wasit had achieved a level of efficiency and ability in civil and security matters.
He also announced that Baghdad would take control "within weeks" of the northern province of Kirkuk (Tamim) and the neighbouring province of Salahuddin.
The transfer of Wasit comes within a week of the return of nearby Babil province to the Iraqis.
Insurgents' route
US forces which remain in the province will now stay in their bases and only take part in security operations at the request of the provincial governor.
Lt Gen Lloyd Austin, second-in-command of US forces in Iraq, said Wasit was once a route for insurgents targeting Iraqi and coalition forces.
"Until seven months back, Wasit saw 16-18 attacks each week," he said.
"Now the province has frequently reached zero attacks largely due to a high level of co-operation between all security units."
Wasit has a 200km (125 mile) border with Iran and the US military has previously accused Iranian groups sympathetic to militants of smuggling weapons into Iraq through the province.
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