Ethiopia says it will fully accept the outcome of a border commission, ending a dispute with Eritrea that sparked Africa's deadliest border war in 1998.
The ruling EPRDF coalition says the decision was taken in an effort to make peace with neighbouring Eritrea.
Tens of thousands of people were killed in two years of fighting.
The two sides have remained on a war footing as Ethiopia refused to accept the ruling of the border commission set up as part of a peace deal in 2000.
The commission said that some disputed areas, including the border town of Badme, were in Eritrea.
As a result, Ethiopia refused to withdrawn its troops out of the disputed areas.
This led Eritrea to accuse Ethiopia of forcefully occupying its territory.
Eritrea has refused to hold any talks with Ethiopia until it agrees unconditionally to the border commission's findings.
Ethiopia's new Prime Minister Abiy Ahmed promised to make peace with the country's northern neighbour after taking power earlier this year.
BBC World Service Africa editor Will Ross says if Ethiopia does now remove soldiers from the disputed land it would show it is serious about seeking peace.