The announcement, which said the pullout was beginning immediately, was a dramatic turnaround by one of Washington's biggest backers in the global war on terrorism. The Southeast Asian country earlier vowed it would not yield to pressure to move up the withdrawal, which had been scheduled for Aug. 20 when the force's mandate ends.
It was a blow to the U.S.-led international contingent in Iraq, which earlier was hit by the pullout of Spanish forces following the deadly terror attacks on Madrid train system. U.S. officials had expressed displeasure that Manila was even considering caving in to the kidnappers' demand, a position echoed by Australia and Iraq's new interim government.
"The Foreign Affairs Ministry is coordinating the pullout of the humanitarian contingent with the Ministry of National Defense," a government statement said. "As of today, our head count is down from 51 to 43."
A deadline set by the Iraqi Islamic Army-Khaled bin Al-Waleed Corps for the Philippines to meet the group's troop withdrawal demand expired early Tuesday, but negotiations continued in Iraq through intermediaries.
The insurgents had told President Gloria Macapagal Arroyo that Angelo dela Cruz, a poor father of eight, already had been moved to the place he would be killed if she didn't change her mind.
The crisis put Arroyo squarely between domestic concerns and her previously strong commitment to the United States, the Philippines' former colonial power.
The timing was particularly bad, with political wounds still fresh from a bitter election. The opposition claims it won and has warned of possible mass protests. But the government has said that the threat of possible destabilization plots had eased following Arroyo's inauguration for a new six-year term on June 30.
Arroyo's handling of the crisis has drawn criticism. In a second day of protests demanding that the Philippines withdraws from Iraq, about 300 left-wing activists were dispersed Tuesday by baton-wielding police outside Manila's Quiapo Church. Several people were reported injured.
The Philippines had imposed a news blackout on the crisis Monday, two days after a possible deal for dela Cruz's release apparently fell apart when the government prematurely announced that he was in the process of being taken to a Baghdad hotel.
"Let us leave the government to do what is necessary to save the life of an innocent Filipino and to uphold our nation's interest," presidential spokesman Ignacio Bunye had said.
"It is not for us to judge and raise our voices now that Angelo's life hangs in the balance. This is the most sensitive point in the hostage crisis. We must unite behind Angelo's family, keep our peace and pray hard."
Iraqi militants have repeatedly used terrorist attacks to try to force governments to withdraw from the U.S.-led occupation force.
In March, a series of terrorist bombings on commuter trains in Madrid shortly before national elections was believed to have contributed to a victory by the socialists, who had campaigned on a platform of withdrawing Spanish troops from Iraq. New Prime Minister Jose Luis Rodriguez Zapatero pulled out the troops soon after taking office.
Militants also tried to pressure South Korea by kidnapping one of its citizens in Iraq and demanding that Seoul drop plans to deploy 3,000 troops beginning in August. South Korea refused, and the captive was beheaded last month.
In other developments: