The Pentagon has confirmed it is to send about 3,600 troops from South Korea to Iraq.
The US currently has 37,000 troops in South Korea
A brigade of the Second Infantry Division is expected to leave its position near the North Korean border.
The highly sensitive move is a measure of how stretched the US military is by the mission in Iraq, says the BBC's Nick Childs at the Pentagon.
US officials insist other military capabilities are being improved and there will be no loss of deterrent.
It will be the first troop reduction on the Korean peninsula since the end of the Cold War.
It also comes amid an extended period of renewed tension over North Korea's nuclear weapons programme.
The force being sent is to help push US troop levels in Iraq up to around 138,000 from about 135,000.
That is 20,000 more than had originally been planned because of the worsening security situation.
The move will see the 37,000 troops in South Korea cut by about 10%, but is unlikely to take place until summer, when tours of duty come to an end.
Shia militiamen in Iraq have risen up to challenge the US occupation
The US is planning a major realignment of its forces in East Asia but says it remains fully committed to the defence of South Korea.
However, the BBC's Charles Scanlon in Seoul says the withdrawal would significantly weaken the strength of the Second Infantry Division - the main US fighting force in South Korea.
The division has 14,000 soldiers stationed near the border with North Korea.
Our correspondent adds that the plan could affect the South Korean government's promise to send its own troops to Iraq.
Seoul has delayed sending about 3,000 troops because of the worsening security situation in Iraq and growing opposition at home.
The recent announcements of withdrawals from Iraq of contingents from Spain, Honduras and the Dominican Republic have added to the pressure on the US to maintain its troop strength.
The US-led coalition in Iraq has been facing growing resistance, as it prepares to hand over sovereignty
A South Korean official revealed on Monday that the Seoul government had been informed of the troop reduction.
The White House said President George W Bush informed both South Korean President Roh Moo-hyun and Japanese Prime Minister Junichiro Koizumi of the plans in phone calls on Monday.
It said both signalled their "support and understanding".
But newspaper editorials in South Korea expressed concern at the move.
The conservative JoongAng Ilbo said: "We face an emergency: our troops must reinforce or substitute those US forces leaving Korea."
Other newspapers pondered whether the reduction anticipated a larger-scale withdrawal from the peninsula, and several blamed tension in South Korea-US relations for the move.
The more liberal Hankyorae paper, however, said Koreans should keep a "cool head", as inter-Korean relations were improving and security situation was easing.
Nonetheless, it agreed swift steps should be taken to make sure defence capabilities were not compromised.