A battalion of Chinese troops estimate at about 50 and accompanied by vehicles and dogs had intruded 19km inside the Indian territory across the Line of Actual Control (LAC) in Daulat Beg Oldi sector on April 15 and set up five tents.
The Indian troops had also established tented posts facing the Chinese forces at a distance of 300 metres.
The troops of the two sides held four flag meetings, the last one being yesterday. However, there was no positive outcome from these meetings, which went hand-in-hand with high level diplomatic efforts to break the impasse.
An agreement was reached late Sunday for both sides to pull back their troops simultaneously from the face off point, which was completed at 1930 hours, the sources said.
Indian and Chinese commanders at the local level shook hands before withdrawing, the sources said.
However, it was not clear whether the Chinese would withdraw all the way back across the LAC to the position that obtained on April 15 as was demanded by India which pressed for restoration of status quo ante.
The face off in Ladakh had cast a shadow over the visit of External Affairs Minister Salman Khurshid to China on May 9 to prepare the ground for the new Chinese Prime Minister Li Keqiang's visit to India from May 20.
Khurshid had told reporters on his way to Iran on May 3 that the progress in dialogue to end the stand off in Ladakh was not satisfactory.
India would have liked a "much better response" from China, he had said and emphasised that it wanted reversal of the "adverse incident" in Ladakh and return to the status quo in Depsang Valley where the Chinese troops have intruded.
The Chinese side had earlier refused to budge from the territory occupied by them and insisted that Indian forces must first pull back its troops in the DBO sector.
Senior military personnel of the two countries led by Brigadier-level officers held a fourth flag meeting at Chushul yesterday but their discussions lasting 45-minute ended without any positive outcome with the Chinese refusing to restore status-quo ante as it obtained on April 15.
The Indian side argued that any pull back had to be simultaneous and that the Chinese should vacate their intrusion. The two sides had then agreed to continue their dialogue.
The Chinese side also reiterated their earlier stand that India should dismantle bunkers constructed along the LAC in Phuktsay and Chumar areas to which the Indian side contended that similar activities were being carried out on the Chinese side.
Chinese officials maintained that the activities on their side was more of a developmental work and that India should stop pushing its grazers in Chumar division, south east of Ladakh.
On April 15, Chinese troops had intruded nearly 27 kms deep into the Indian territory but an early detection and aggressive patrolling by the security personnel posted in the sector managed to pull them back to the present position near the old patrol base in the DBO sector, which is still 19 kms from the LAC.
Under today's agreement, the Indian troops decided to move back to Burste, the point they were stationed at prior to April 15.
MEA sources said that over the last few days there have been intensified diplomatic consultations between India and China.
The consultations were being held at various levels including through our missions in Beijing apart from the Foreign Secretary being in direct touch with concerned officials, sources said.
The consultations were followed by flag meetings between army officials of the two countries.
A formal statement on the issue is expected tomorrow.
The political leadership has already been briefed by senior government officials.