British troops quit the Iraqi city of Basra on Monday, leaving the southern oil hub without British forces for the first time since the U.S.-led invasion that toppled Saddam Hussein in 2003.

The withdrawal from the besieged Basra Palace complex, under daily mortar and rocket fire by Shi'ite militias, is a step towards handing over Basra province to Iraqi control and an eventual British pullout from Iraq.

Members of the Shi'ite Mehdi Army cheered the withdrawal as a victory for the militia and a defeat for Britain.

"They were facing catastrophe and withdrew because of the attacks by the Mehdi Army," Mehdi Army fighter Abu Safaa said.

The withdrawal will lead to a cut in British soldiers to about 5,000 -- all now concentrated in a vast air base, also under daily attack, on the outskirts of Basra.

A surge in attacks this year has killed 41 British soldiers - the highest number of casualties suffered by the British since the first year of the war.

British Prime Minister Gordon Brown rejected suggestions the troops, about 500 in all, were retreating under fire.

"This is a pre-planned and ... organised move from Basra Palace to Basra air station," Brown told BBC radio. "This is essentially a move from a position where we were in a combat role ... to being in an overwatch role."

The British military in Basra said there had been no attacks on British forces during the withdrawal to the airport.

Major-General Mohan al-Firaiji, commander of Iraqi security operations in Basra, said the pullout was completed just before dawn and "the Iraqi army took responsibility for protecting the palace".

Iraqi soldiers were on guard outside the main gate into the palace, built for Saddam, and Iraqi flags were hoisted over the building.

The apparently smooth transition to Iraqi control contrasted with the handover of bases in Muthanna and Maysan provinces last year, which were ransacked hours after British troops left.

Basra residents said they saw armoured vehicles leaving the palace in the early hours of Monday. Helicopters also took off and landed during the night.


SECURITY RESPONSIBILITY

In a statement, the British Ministry of Defence said British forces would retain overall security responsibility for Basra until the handover to provincial Iraqi control, expected towards the end of the year.

British troops would continue to train and support Iraqi security forces there.

The pullout comes a week before U.S. President George W. Bush's top officials in Iraq present pivotal reports to Congress on the country's security and political situation.

The testimony on Sept. 10 by U.S. commander, General David Petraeus, and Ambassador Ryan Crocker, could influence future White House policy on the more than four-year-old war.

The withdrawal also comes amid recriminations between former U.S. and British generals over the Iraq conflict.

Britain's foreign and defence ministers published an editorial in a U.S. newspaper last week defending Britain's role in the face of suggestions in U.S. media that British forces had failed in Basra and were set to flee.

Basra has witnessed a turf war between rival Shi'ite groups, including supporters of cleric Moqtada al-Sadr, the Supreme Iraqi Islamic Council and smaller Fadhila party, mainly for political supremacy and control of illegal oil traffic.

While residents say there is now a fragile calm between the groups, there are fears the British withdrawal will be accompanied by an upsurge in factional violence.

A city of more than 1 million people, Iraq's second city is strategically vital as the hub of southern oil fields that produce nearly all of the government's revenue, and the centre for imports and exports through the Gulf.