how to physically remove untagged docker images

You should be able to remove untagged Docker images using the "dangling=true" flag:

sudo docker rmi $(sudo docker images -f "dangling=true" -q)

source:

https://docs.docker.com/engine/reference/commandline/images/

First you need to remove exited containers, then remove dangling images.

docker rm $(docker ps -q -f status=exited)
docker rmi $(docker images -q -f dangling=true)

After all, I created the below script as ~/bin/dclean and have been using it.

#!/bin/sh

processes=$(docker ps -q -f status=exited)
if [ -n "$processes" ]; then
  docker rm $processes
fi

images=$(docker images -q -f dangling=true)
if [ -n "$images" ]; then
  docker rmi $images
fi

If John Petrone solution doesn't work, try removing those images referring explicitly the IMAGE ID you see when you run docker images. You can remove all of them with one command

for i insudo docker images | grep \ | awk '{print $3}'; do sudo docker rmi $i; done

PD: I don't know John Petrone answer. It works nicely with Docker 1.4.1

This command will remove all the dangling images and containers from docker.

docker system prune -f