But the military said a "significant force" will continue to operate in the rest of the besieged Gaza Strip.

"The 98th commando division has concluded its mission in Khan Yunis," the army said in a statement to AFP. "The division left the Gaza Strip in order to recuperate and prepare for future operations.

"A significant force led by the 162nd division and the Nahal brigade continues to operate in the Gaza Strip and will preserve the IDF's freedom of action and its ability to conduct precise intelligence based operations," the statement said.

Israeli security expert Omer Dostri said the withdrawal is purely tactical and did not mean the war was anywhere near over.

Under heavy pressure from its US allies, pulling out ground troops from southern Gaza would also help Israel in truce and hostage release talks with Hamas, Dostri said.

But he predicted that the commandoes will return to fight surviving Hamas militants after displaced people are evacuated from neighbouring Rafah, the far southern city on the Egyptian border.

"I predict that, after the evacuation of the residents, within two months there will be a (ground) move in Rafah to destroy the remaining Hamas brigades," the expert from the Jerusalem Institute for Strategy and Security told AFP.

He estimated that one Hamas brigade remains in Rafah and a battalion and a half of its fighters in the centre of the Gaza Strip, "mainly in Nuseirat".

Dostri also predicted that, once those Gaza battles have ended, Israeli ground troops will step up operations against Iran-backed Hezbollah fighters in southern Lebanon.

- First Hamas, then Hezbollah -

Dostri said "Israel's military logic dictates the elimination of Hamas's military power before launching a campaign in the north".

An army official told the left-leaning daily Haaretz that "there's no need for us to remain in" Khan Yunis.

"The 98th division dismantled Hamas's Khan Yunis brigades and killed thousands of its members. We did everything we could there."

Displaced Palestinians from Khan Yunis may now be able to return to their homes after sheltering Rafah, Haaretz quoted the official as saying.

However, the army "will continue to operate there according to the operational needs," the official told Haaretz.

Despite the withdrawal from the south, the Times of Israel said the army's Nahal brigade will continue to hold the central "Netzarim Corridor", which effectively cuts the Gaza Strip in two.

Once densely populated, Khan Yunis has been the scene of fierce fighting for months, with relentless bombardment reducing swathes of the city to rubble.

Despite an international outcry, the Israeli government has vowed to carry out a ground offensive in and around Rafah city where more than 1.5 million Gazans have sought refuge.

The war in Gaza was sparked by the Hamas attack on October 7 that resulted in the deaths of 1,170 Israelis and foreigners, most of them civilians, according to an AFP tally based on official Israeli figures.

At least 33,175 people have been killed in the Palestinian territory in Israel's retaliatory campaign, according to Gaza's Hamas-run health ministry.