The dramatic rescue came on a day that saw 15 people killed, mostly Kurdish troops, and 15 wounded in two bombings in northern Iraq.
Richard Butler was in good condition when he was found with a sack over his head and his hands tied inside a house, Lt. Gen. Mohan al-Fireji said. The discovery came during an Iraqi military sweep in the Jibiliya area, a Shiite militia stronghold in Basra, 340 miles southeast of Baghdad.
Defense ministry spokesman Mohammed al-Askari said that an army patrol conducting a search came under fire from the house where Butler was being held. One of the gunmen was wounded in an exchange of fire and another captured while two men escaped, he said.
Butler was later shown on Iraqi state television laughing and greeting his rescuers.
"Thank you and I'm looking forward to seeing my family and my friends at CBS and thank you again," Butler told al-Askari.
He described the soldiers' performance as "brilliant."
"The Iraqi army stormed the house and overcame my guards and they burst through the door," Butler said. "I had my hood on, which I had to have on all the time, and they shouted something at me, and I pulled my hood off."
In London, British Foreign Secretary David Miliband welcomed Butler's release and said he was "very grateful to (Iraqi) security forces for the professionalism of the task they have undertaken."
He said Butler was in the care of the British consulate in Basra.
In New York, CBS News spokeswoman Sandy Genelius said the network was "incredibly grateful that our colleague ... has been released and is safe."
Butler was kidnapped along with his Iraqi interpreter on Feb. 10 in Basra. The interpreter was later released. Iraqi police and witnesses said the two men were seized by about eight masked gunmen wielding machine guns who stormed a hotel in the city.
In recent days, Iraqi forces have started house-to-house sweeps for arms, weapons, drugs and criminal elements in several parts of Basra, Iraq's second-largest city. The military said it has uncovered an improvised explosive device factory, along with significant arms caches and numerous roadside bombs, mortars and rocket-propelled grenades.
Serious fighting in Basra has abated since a failed government offensive last month to dislodge militia groups. But sporadic violence has continued.
On Sunday night, gunmen assassinated police Maj. Ali Haider, a commander in the department's serious crimes directorate. Haider was a member of the Supreme Islamic Iraqi Council, a Shiite political party that is part of the governing coalition of Prime Minister Nouri al-Maliki.
The council is often at odds with factions loyal to anti-U.S. Shiite cleric Muqtada al-Sadr.
Al-Sadr demanded Monday that the Iraqi government reinstate all security forces fired for deserting during fighting in Basra.
The statement was issued by his office in the holy city of Najaf a day after more than 1,300 soldiers and policemen were dismissed for abandoning their posts or refusing in last month's Basra fighting.
"All the brothers in the army and police who gave up their arms to their bothers (Sadrists), were only obeying their grand religious leaders and they were driven by their religious duties," the anti-U.S. cleric said.
"I call upon all concerned authorities to reconsider their decision to dismiss those people from the army and the police. I demand they be reinstated and even rewarded for their loyalty and devotion to their religion," he added.
The government is demanding that al-Sadr disband his Mahdi Army, which has strongholds in Baghdad's sprawling Sadr City neighborhood, the port city of Basra and other locations in southern Iraq.
Sporadic clashes have continued in Baghdad, where Iraqi and U.S. troops have confronted the Mahdi Army. Dozens have died in the daily violence in the capital's eastern districts during the past two weeks.
A large section of a market area in eastern Baghdad was set ablaze early Monday when a bomb exploded next to a convoy of U.S. military vehicles driving down a commercial thoroughfare.
The U.S. military said none of the soldiers involved was seriously hurt in the 2 a.m. blast. More than a dozen U.S. and Iraqi firefighting vehicles rushed to the scene to put out the fire, which continued until morning.
Later in the day, another roadside bomb in downtown Baghdad killed five people and wounded nine, police said. The blast missed a police patrol but hit a passing minibus, said a police officer who asked not to be identified because he was not authorized to speak to the media.
The U.S. military said militants firing rocket-propelled grenades ambushed an American patrol in eastern Baghdad late Sunday night. Fire from armed helicopters and an Abrams tank repulsed the attack, killing six of the gunmen, the statement said.
In northern Iraq, meanwhile, a parked car bomb exploded near an Iraqi army convoy in the Rabiaa area west of Mosul, police chief Col. Mutlaq al-Shimmari said. Twelve Kurdish soldiers died and five were wounded. The U.S. military has called Mosul the last urban stronghold of al-Qaida in Iraq.
In Tal Afar, a suicide bomber blew himself up during a funeral for a Shiite family, killing three people and wounding 10, Mayor Najim Abdullah said.
Elsewhere in Iraq, U.S. soldiers discovered a mass grave near Muqdadiyah, about 60 miles north of Baghdad, the military said Monday.
The grave site, which was unearthed Sunday, contained 20 to 30 badly decomposed bodies that appeared to have been buried nearly eight months, according to the statement. It said the remains would be moved to a nearby cemetery.
It was the latest in a series of mass graves discovered as U.S. and Iraqi troops clear former insurgent strongholds amid improved security, allowing stepped-up patrols.