IRAQ regained full control of its towns and cities yesterday as United States troops pulled back, six years after the invasion to topple Saddam Hussein.

Though some Iraqis fear the first step in a full US withdrawal may leave them open to attack, the government declared the day - now known as "National Sovereignty Day" - a holiday, and held a military parade to flex its muscles at a still-stubborn insurgency.

Prime Minister Nuri al-Maliki said in a televised address: "This day, which we consider a national celebration, is an achievement made by all Iraqis.

"Our incomplete sovereignty and the presence of foreign troops is themost serious legacy we have inherited (from Saddam). Those who think that Iraqis are unable to defend their country are committing a fatal mistake."

By midnight, all US combat units should have withdrawn from Iraq's urban centres and been redeployed to rural bases, according to a bilateral security pact that requires all US troops, except for trainers and advisers, to leave Iraq by the end of 2011.

Yesterday's festivities included a parade in Baghdad's heavily- fortified Green Zone government and diplomatic district, viewed by Iraqis as the ultimate symbol of the foreign military presence until local forces took control of it in January.

Thousands of Iraqi soldiers and police officers paraded on foot or in US-donated Humvees, armoured cars and tanks, in the same place beside a monument to the Unknown Soldier, where Saddam's forces used to stage elaborate displays of power.

Citizens drove through streets with flags and plastic flowers draped over their cars.

Interior Minister Jawad al-Bolani told Reuters: "We still have important steps to take and we know our way forward is not easy.

"We need to develop our intelligence-gathering and technical abilities, because the next war is an intelligence war." -Reuters