The Duke and Duchess of Sussex during their trip to South Africa. (Photo by DPPA/Sipa USA)
They will also no longer use their "Royal Highness" titles, the palace said on Saturday in an announcement that sought to end turmoil in the monarchy sparked earlier this month when the couple announced they wanted to reduce their official duties and spend more time in North America.
The queen and senior family members met last week to discuss the situation and have been in discussions with officials on how this stepping back would work in practice for Harry, 35, and his American wife, former actress Meghan, 38.
"Harry, Meghan and Archie will always be much loved members of my family," Queen Elizabeth said in a statement issued by the palace, referring to the couple's baby son.
"I recognise the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life."
The queen said she was "particularly proud" of how quickly Meghan had become one of the family. The couple married in May 2018 in a lavish ceremony at her home in Windsor Castle, west of London.
Harry will remain a prince and the couple will keep their titles of Duke and Duchess of Sussex as they begin a new life split between North America and Britain. Meghan is currently in Canada with Archie and Harry is expected to join her soon.
A palace spokeswoman said the couple would no longer receive public money and that they would repay the cost of refurbishing their cottage in Windsor, which official figures show amounted to 2.4 million pounds ($A4.5 million).
It remained unclear what public funds would be spent on their security. Buckingham Palace declined to comment but said there was an independent process to determine public funding for security.
Canadian Prime Minister Justin Trudeau's office declined to comment on Saturday's news.
The couple's plans for independence, announced after a long break over the Christmas period in Canada, caught the rest of the royal family by surprise earlier this month and left the queen and other senior Windsors hurt and disappointed, according to royal sources.
However, in a TV interview aired in October, both had made it clear how they were struggling with the intense media scrutiny. Harry said he felt his wife had faced "bullying" from some press.
A friend of Harry and Meghan also said last week the couple felt they had been driven out by some members of the royal family.
The changes will come into effect in the spring of this year, the palace said, and there will be further royal engagements before the new arrangement comes into effect. The situation will be reviewed in a year's time.
There has been intense media speculation in recent days over what exact roles the couple would have.
"As agreed in this new arrangement they understand they are required to step back from royal duties," a Buckingham Palace spokeswoman said on Saturday
"The Sussexes will not use their HRH title as they are no longer working members of the royal family."
The change means Harry, who served a decade in the British Army, will give up his military patronages and his role as Commonwealth Youth Ambassador.
While they will no longer receive public funding, Harry's father Prince Charles, the heir to the throne, will continue to offer private financial support, a royal source said.
The source said the couple will spend the majority of their time in North America, and had not signed any commercial agreements as yet.
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