The transfer of security to the Iraqi government in Muthanna next month will pave the way for handovers in other provinces, the defence secretary says.
The training of Iraqi soldiers will be the key to the foreign pull-out
Des Browne said the announcement by the Iraqi PM of the handover "will eventually lead to our ability to draw down our forces in Iraq".
Talking to BBC News from Baghdad, Mr Browne said he is also discussing a long-term security plan for Basra.
About 150 British troops are stationed in the southern Muthanna province.
"We will now begin to look at other provinces ... this is the beginning of that process," Mr Browne said.
"It's an important day for Iraq and a very important day for the UK as well as an important day for the people of Muthanna province."
He said the announcement did not mean British troops would be withdrawn. UK troops in Muthanna will be remain stationed close to the region, he said.
A significant step
Tony Blair has welcomed the handover of Muthanna province to civilian and military control.
The Prime Minister's official spokesman said: "It doesn't mean that the Australian, Japanese and small number of British troops that are there will pull out by tomorrow.
"But it is a significant step on the way to Iraq taking control of its own destiny and therefore we welcome it."
Iraqi Prime Minister Nouri al-Maliki, said: "Muthanna province will be the first province where this plan will start and this is proof that our forces are capable of dealing with the security file.
"That security file will be transferred next month, God willing, and we will set the day," he said.
British, Australian and Japanese troops control the province, the largest of five in the UK-run south east of Iraq.
Japan has about 600 non-combat troops carrying out humanitarian tasks in Muthanna's capital, Samawah.
Australia has about 460 soldiers guarding the Japanese.
The Australian contingent has also been responsible for training Iraqi soldiers in the province, ready for them to take over.
The handover in Muthanna will be followed by Maysan - where there are 1,000 British troops deployed.
Britain has about 8,000 troops in southern Iraq, and about 2,000 others in the Gulf region.