The number of UK troops in Iraq will be reduced by 800 to 7,000, Defence Secretary John Reid has announced.
British forces could withdraw from some areas
Mr Reid said they could be withdrawn in May because Iraqi forces, now numbering 235,000, were capable of overseeing tactical responsibilities.
But this is not part of the "handover of responsibility", he told MPs.
A new committee of Iraqi ministers, military staff and coalition figures will start assessing whether some provinces can begin the handover.
But former Army officer Colonel Tim Collins said the reduction sent out the wrong message and the Iraqi army was in no condition to take over.
"This is no time to give those trying to start a civil war any hope or succour," he told BBC News.
The reduction means a total of 3,000 troops will have been withdrawn since October 2003, when there were 10,000 British troops there.
Mr Reid said there were now 235,000 members of the Iraqi security forces equipped and trained, with 5,000 more signing up every month.
And the Iraqi Army has 110 operational combat battalions carrying out counter-insurgency operations.
This decision to reduce numbers was not prompted by a rise in violence and was not part of a wider timetable, said the minister.
It reflected the "completion of some of our security sector reform tasks to develop the capability of the Iraqi forces", he said, and improvements in the way UK forces are configured.
"Let me stress that the reductions I have announced are not part of a handover of security responsibility," said Mr Reid.
"They are not caused by, nor a cause of, changes in troop levels of other coalition allies.
"In the next few weeks the joint committee to transfer security responsibility will start the assessment phase to look at whether conditions have been met for some provinces to begin the handover process."
Shadow defence minister Gerald Howarth said it would be "folly" to withdraw before Iraqi forces were capable of providing adequate security.
He sought an assurance, which Mr Reid gave, that the decision was not due to the need to find additional troops to send to Afghanistan.
Mr Reid praised the "magnificent work" of troops
Downing Street has always insisted there is no strict timetable for British troops to quit Iraq and withdrawal depended on the "quality and quantity" of Iraqi troops.
Lieutenant General Nick Houghton, the UK's senior commander in Iraq, had told a newspaper they could withdraw by 2008.
Elsewhere in his Commons statement, Mr Reid said the current lead formation in Iraq, 7th Armoured Brigade, will be replaced in May by 20th Armoured Brigade.
Major units, including 1st The Queen's Dragoon Guards and the 12th Regiment Royal Artillery, would replace those currently in Iraq.
Aviation support will be reduced by two Sea King helicopters in May but support for the Iraqi Navy and the coalition task force in the north of the Gulf would be unchanged.
Mr Reid said despite the continued violence, civil war was "neither imminent nor inevitable" and the calm reaction of Iraqi civilians and troops were encouraging signs.
"Despite the ferocity of the terrorist, the Iraqi people will not be defeated - and our will to see the job done will not be broken."