The US military is to move its main base in South Korea from the capital, Seoul, to a new location inside the country as part of its global redeployment of forces.
South Korea is home to about 37,000 US troops
The announcement follows two days of talks between Richard Lawless, US deputy assistant secretary of defence for East Asia, and South Korea's assistant defence minister for policy, Cha Young-koo.
Both sides have stressed that the redeployment of troops from the Yongsan garrison will not affect their ability to deter North Korea - currently the source of tensions in the region because of its nuclear programme.
"The two sides agreed that there would be no compromise on the combined deterrence of their forces throughout the process of realignment," said a joint statement issued on Wednesday.
South Korea's new President, Roh Moo-hyun, has also announced he will visit US President George W Bush in Washington next month for their first face-to-face talks on the North Korean crisis.
Correspondents say the US troops' redeployment is designed to modernise the US-South Korean military alliance, as US troops occupy the same positions they have held since the end of the Korean war 50 years ago.
US Defence Secretary Donald Rumsfeld said last month that some of the 37,000 US troops currently stationed in South Korea could be moved further south - away from the North Korean border - sent to neighbouring countries, or even sent home.
The US military presence has sparked several protests in South Korea, after relations were strained by a number of high-profile incidents involving US troops.
These included the acquittal by a US military court last year of two US soldiers who ran over two South Korean schoolgirls.
Some South Koreans have also expressed resentment that US troops occupy valuable property at the expense of other residents.
South Korean Prime Minister, Goh Kun, had urged the US to postpone the talks until tensions with the North over its nuclear programme had eased.
The BBC's Seoul correspondent, Caroline Gluck, says South Korea sees American forces near the border as a "tripwire", ensuring US involvement if any conflict broke out on the peninsula.
South Korea's President, Roh Moo-hyun, came to power promising to push for a review of Seoul's relationship with Washington.
He has subsequently arranged to send non-combatant troops to the US-led war in Iraq, sparking fierce protests in South Korea.
Mr Roh argued that the show of support was essential for Seoul's relations with Washington, upon which it depends for defence against the North.
The United Nations Security Council is due to discuss the North Korean nuclear crisis on Wednesday.
Pyongyang has labelled the meeting a "provocative act".
On Monday, cabinet-level talks between the North and South were cancelled, as relations continued to deteriorate.