Iraq regained full control if its towns and cities on Tuesday as US 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 'National Sovereignty Day' a holiday and held a military parade to flex its muscles at a still stubborn insurgency.

'This day, which we consider a national celebration, is an achievement made by all Iraqis,' Prime Minister Nuri al-Maliki said in a televised address, as citizens drove around the streets with flags and plastic flowers draped over their cars.

'Our incomplete sovereignty and the presence of foreign troops is the most 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By midnight on Tuesday, all US combat units must have withdrawn from Iraq's urban centres and redeployed to rural bases, according to a bilateral security pact that requires all US troops except for trainers and advisers to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.

In a bloody reminder of the war unleashed by the 2003 US invasion, the US military said four US soldiers based in Baghdad had died of combat-related injuries on Monday. It gave no further details.

Pentagon spokesman Bryan Whitman said the United States had closed or returned to local control 120 bases and facilities, and would turn over or close another 30 by the end of Tuesday.

The day'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 paraded on foot or in US-donated Humvees, armoured cars and tanks -- in the same compound beside a monument to the Unknown Soldier where Saddam's forces used to stage elaborate displays of power.

The state television channel, Iraqiya, has been running a countdown clock in a corner of its screen. And across Baghdad, signs were draped on the ubiquitous concrete blast walls reading 'Iraq: my nation, my glory, my honour.'    

'We still have important steps to take and we know our way forward is not easy,' Interior Minister Jawad Al-Bolani told Reuters at the parade.

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

Maliki has compared the US pullback to rebellions by Iraqi tribes against the former British empire in 1920. Many Iraqis see it as restoring their national pride, six years after the US invasion to oust Saddam turned into a foreign occupation.

'Definitely, our forces can take control of things now,' said Dawood Dawood, 38, who owns a bathroom appliance shop in downtown Baghdad. 'The US withdrawal is a positive step.'    

Some fear a resurgence of violence without the presence of US forces to police Iraq's cities, although their bases outside remain close enough for them to redeploy if needed.

Militants have stepped up attacks in the past week, including two of the biggest bombings in more than a year, which killed 150 people between them.

But the tit-for-tat violence that brought Iraq to the brink of all-out sectarian civil war in 2006-2007 has receded. In any case, Iraq has to take the plunge eventually, with President Barack Obama planning to end the US combat mission by Aug. 31 next year. - Reuters