Chinese troops started retreating into their territory from 9:45 PM, the sources said, adding that Indian army which was present also in large number in the area also started simultaneously reducing their presence in the area, about 300 km east of Leh.
The sources said that a vigil was still being maintained as the Chinese People's Liberation Army (PLA) had camped just across the Line of Actual Control (LAC) and the situation would be reviewed tomorrow.
The Chinese nomads actively helped by the PLA have been protesting against an irrigation canal being built for the local villagers.
The standoff in Demchok and Chumar had cast a shadow on today's summit talks between Prime Minister Narendra Modi and Chinese President Xi Jinping.
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The sources said that the Chinese side pushed in more troops before the break of dawn with more banners asking the Indian Army to leave the area. The number of Chinese troops had shot up to 600.
The Chinese side had been constructing a road on their side of LAC but on Sunday, its workers entered into Indian side to carry on the construction.
This was objected by the Indian side as Chinese workers were making assertions that they have instructions to build a road upto Tible, five kilometres deep into Indian territory, the sources said.
The Indian army asked the Chinese workers to leave as otherwise they would face prosecution under Indian laws of entering into the country illegally.
India also rushed reinforcements to the area and were not allowing the Chinese troops to proceed further and also asking them to retreat to their side.