General Hawedi Mohamed paid tribute to the 179 UK personnel who have died since the 2003 invasion at a feast in honour of the outgoing British commander in the southern Iraqi province.
"The Iraqi Army and the Iraqi public will remember the sacrifice by British forces for some time to come," he said.
Major General Andy Salmon, who will hand control of coalition forces in Basra to the US Army later this week, said Iraq could be the "envy of the world" if its leaders looked after their people.
The feast, at Basra Operations Command at the former Shatt Al Arab Hotel in Basra, was attended by local Iraqi dignitaries including senior Army and police officers, sheikhs and religious leaders. Among them was US Army Major General Michael Oates, who is poised to take over command of coalition troops in Basra on Tuesday.
Speaking through an interpreter, General Mohamed said: "I would also like to thank the British nation through the general for the assistance they have provided to help rid us of dictatorship and live in freedom and democracy. Our thoughts and prayers are also with the families of the British soldiers who lost their lives in this country."
Maj Gen Salmon said: "As we sit here now having completed the UK's military tasks, we look to the future with, I've got to say, a huge amount of optimism, which I think reflects the way that people now view life in Basra."
He added: "I think the challenge is simply that if you look after the people, you deliver their needs, they will support you and they will work together with you to make Basra and Iraq a very stable place which will be the envy of the world."
Maj Gen Michael Oates said the American military would "pick up where the British forces have left off" in Basra.
"British forces have been our best allies throughout this campaign, and our relationship in several tours that I have had here, has been nothing short of outstanding partnership," he said. "So it's a bitter-sweet day for me to have them leave, but I'm enormously proud of them, and I think the people of Great Britain should be very proud of their Army. They've done an outstanding job in Basra."