Russia has fought two wars in the region since 1994 and this move is likely to bolster the authority of the region's Kremlin-backed leader.
Ramzan Kadyrov, 32, has consolidated his authority since becoming president of the region two years ago with orders from the Kremlin to snuff out any rebel resistance.
However human rights groups have repeatedly accused him of human rights abuses.
Although sporadic fighting still flares, Mr Kadyrov has subdued large-scale rebel resistance, defeated his opponents and restored parts of the region using billions of dollars of federal cash.
People living in Chechnya's rebuilt capital Grozny have welcomed Moscow's decision to end what it called its 'counter terrorism operation'.
Curfews, roadblocks, spot searches and arbitrary detention were imposed in Chechnya in 1999 when Prime Minister Vladimir Putin sent soldiers into the region to end its short-lived independence - won in an earlier war with Moscow.
President Dmitry Medvedev stressed he ordered the lifting of the 'special security regime'.
Kremlin opponents say the special security regime, which also includes restricted access for journalists, has allowed numerous violations of human rights in the region.
Although most of its army units have been withdrawn from Chechnya, tens of thousands of police from other Russian regions and scores of special service units still patrol there.
Russian media quoted officials this afternoon as saying 20,000 of these personnel would now leave.
In the central square in Grozny, workers are preparing for a free concert later in the evening to mark the end of the Russian military operation.
