An army officer in northern Israel said troops had abandoned all their positions on Lebanese territory with no casualties.
He described it as a "complete success".
Many of the posts were blown up as convoys ferried hundred of soldiers across the border into Israel during the night.
For more than an hour after dark the sound of heavy artillery echoed in the hills around Metulla, one of the main crossing-points.
In the wake of the retreat, Hezbollah guerrillas swept south by car and on foot following the almost total collapse of Israel's allied militia, the South Lebanon Army (SLA).
Exodus
Fierce fighting was reported in several places close to the Israeli border and Lebanese villagers took over the notorious Khiam prison, freeing inmates.
The exodus began after Israeli Prime Minister Ehud Barak said his army would complete its withdrawal from territory it has occupied for 20 years within a few days.
Mr Barak has meanwhile accused Syria of doing everything in its power to sabotage the entire operation.
In a letter to the United Nations Secretary-General, Kofi Annan, he accused Syria of encouraging Palestinian groups based in Lebanon to attack Israel.
He also said the Syrians were allowing the Hezbollah movement to undermine regional security.
Emotional
Our correspondent Nick Childs, on the Israeli border near Metulla, says there were extremes of emotion on display as the Israeli pull-out continued and accelerated in confusion.
For many Israeli soldiers, there was relief that the unhappy south Lebanon occupation was coming to an end.
But there was also fear on the faces of the refugees, many militiamen from the Israeli-sponsored SLA and their families, also desperate to head south. They fear reprisals from Hezbollah.
SLA members have either been surrendering to Lebanese forces, joining those seeking asylum or simply returning to their own villages.
A further indication of the SLA collapse came when more than 100 villagers stormed Khiam jail. They freed 130 Lebanese prisoners held without charge or trial for up to 15 years.
In northern Israel, residents have been ordered into bomb shelters following warnings from Hezbollah that it will continue its actions against Israel.
Its threat brought a warning from the Israeli Chief of Staff, Shaul Mofaz, that the military would be prepared to attack Syrian targets in Lebanon to ensure calm along its border after the withdrawal is complete.
Syria, the main power broker in Lebanon where it has some 35,000 troops, supports the Shi'a Muslim Hezbollah which has led resistance to Israel's so-called security zone.
Jubilant Lebanese
There is jubilation in south Lebanon where civilians are now returning to reclaim villages and homes they left during the long conflict.
Much of the transfer of territory has taken place without bloodshed, but as many as six Lebanese civilians have been killed in SLA gunfire.
Mr Annan has warned that the turmoil in Lebanon could jeopardise UN peacekeeping plans. He had hoped to boost the peacekeeping force to nearly 8,000 troops, but warned that if the conflicting sides did not exercise restraint, UN troops would be withdrawn completely.