The banner, which went up on the State House grounds more than half a century ago at the height of the US civil rights movement, was removed shortly after 10am (1400 GMT) before a large crowd and live TV cameras.
The relocation of the flag came a little over three weeks after the racially motivated massacre of nine black worshippers during a Bible study session on June 17 at a landmark black church in Charleston.
South Carolina taking down the confederate flag - a signal of good will and healing, and a meaningful step towards a better future.
— President Obama (@POTUS44) July 10, 2015
Courage in South Carolina – a divisive symbol comes down. The healing continues. God bless the Mother Emanuel victims and their families.
— VP Biden (Archived) (@VP44) July 10, 2015
Read: Gunman kills nine people in South Carolina church shooting, police say
The banner's new home will be the "relic room" of the state military museum in Columbia, South Carolina's capital, where the flag will reside with other artefacts carried by Southern Confederate soldiers 150 years ago in the Civil War.
South Carolina Republican Governor Nikki Haley, who had pledged a day earlier to "bring it down with dignity," called Friday a great day for the state in an interview with NBC's "Today" television show.
South Carolina Governor Nikki Haley signs a bill to remove the Confederate battle flag from the state house grounds July 9, 2015 in Columbia, South Carolina. PHOTO: AFP
"I'm thinking of those nine people today," Haley said, referring to the nine men and women gunned down at Charleston's African Methodist Episcopal church.
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