The flag of the British headquarters in Basra was lowered on Tuesday during a solemn ceremony marking the start of a months-long process that will see all 4,100 British troops leave the violence-wracked country by the end of July.
"One hundred and seventy-nine gallant warriors of the United Kingdom made the supreme sacrifice," said General Ray Odierno, the senior US army officer in Iraq, in tribute to the British personnel who have died in the country since 2003.
"We have shed blood together and that is a bond that no man can break," he told about 300 guests, including British and Iraqi officers and diplomats, shortly before a US army flag was raised and the colours of the Royal Marines were lowered.
"You have restored hope where chaos reigned," Odierno added.
Britain's chief of defence staff Air Chief Marshal Sir Jock Stirrup paid tribute "to those who made the ultimate sacrifice" and described the Iraq campaign as "a noble endeavour."
"This occasion is about the countless number of men and women from the far-flung corners of the United States and from Great Britain who have striven with such courage here," he said.
"I salute you with pride."
Major General Andy Salmon, the senior British officer in Basra, handed over the southern base to an American commander, in a key step towards all foreign troops leaving the country and a full return to Iraqi sovereignty.
The colours of the coalition's Multinational Division South-East, a specially inscribed Royal Marines flag, were lowered and replaced with the standard of the US Army's 10th Mountain Division.
Salmon, a Royal Marine and veteran of the 1982 Falklands conflict and 1991 Gulf War, was among 40 British troops to leave Basra after Tuesday's ceremony.
He and his predecessors were praised by Iraqi army General Nassir Abadi.
"Now is the time to thank those British personnel who have served in our country and the many who have contributed so much," Abadi said.
"We owe a debt of gratitude that we can best repay by continuing the progress that my country has made."
Britain, under then prime minister Tony Blair, was America's key ally when president George W. Bush ordered the invasion of Iraq in March 2003 to overthrow Saddam.
In London Blair's successor, Gordon Brown, paid tribute to the British troops.
"There have been difficult times along the way, but British troops have made an outstanding contribution to laying the ground for a stable and increasingly prosperous Basra -- part of a stable, secure and prosperous Iraq," Brown said in a statement.
British troop numbers in the campaign were the second largest, peaking at 46,000 in March and April 2003 at the height of combat operations that resulted in the dictator's ouster and eventual execution for crimes against humanity.
Under a deal signed by Baghdad and London last year the last 4,100 British soldiers would complete their mission -- primarily training the Iraqi army -- by June, before withdrawing completely in late July.
Tuesday's departure began almost 50 years after Britain's previous exit from Iraq, in May 1959, when the last soldiers left Habbaniyah base near the western town of Fallujah, ending a presence that dated back to 1918.
Basra, Iraq's third-largest city and a strategic oil hub, had been under British command since the 2003 invasion, but the province and its airport returned to Iraqi control three months ago.
As well as training its soldiers, Britain has been instrumental in the rebirth of the Iraqi navy.
A Royal Navy training team is based at the southern port of Umm Qasr, and its role is expected to continue although a new agreement has yet to be reached.
The British pullout comes as the US military also steps up preparations to leave Iraq.
Under a US-Iraqi security agreement signed last November, American troops must withdraw from major towns and cities by June 30 and from the whole country by the end of 2011.