Indonesia is finishing its troop withdrawal in the province of Aceh, completing a key condition of a peace agreement with Acehnese rebels to end nearly three decades of separatist conflict there.

Hundreds of residents of the town of Lhokseumawe watched as more than 2,000 Indonesian military personnel boarded four Navy ships in Aceh Thursday - marking a turning point in the province's nearly 30-year-old separatist conflict.

The departure completes Indonesia's promise to withdraw 25,000 military personnel from the province under a peace agreement signed with the rebel Free Aceh Movement in August. Several hundred police officers are due to be withdrawn in the coming days.

In exchange, the rebels, also known as GAM, surrendered more than 800 weapons and disbanded its armed unit last week.

Juri Laas is the spokesman for the European Union-led Aceh Monitoring Mission, which is overseeing the process. He says the withdrawal substantially reduces the Indonesian military presence in the province.

"After this relocation as foreseen in the memorandum of understanding signed in Helsinki, there will only be 14,700 organic troops - troops who would normally be based here," he said.

This is the second attempt at peace by both sides. An agreement in 2002 quickly collapsed and ended in martial law and a large military operation in the province.

The Helsinki agreement, hammered out in the wake of last December's tsunami, which devastated much of Aceh, has so far been implemented smoothly.

The agreement grants autonomy to the oil-rich province - allowing for its own elected government, legislative and court system. It also gives the province the right to retain most of the revenue from its oil deposits.