The prime minister has been told by advisers the number of British troops in southern Iraq could be cut by 2,000 by spring, the BBC has learned.
A cut in UK troops would not take place immediately
Plans for a complete UK withdrawal from Basra have been rejected.
But Gordon Brown has been advised that once the focus of troops is largely on training and mentoring Iraqi forces, numbers could drop from 5,000 to 3,000.
The cut, yet to be decided on, could be announced in a statement on Iraq due when the Commons sits again next week.
It is thought British forces are likely to stay in Basra for up to two further years.
They are currently heading towards "overwatch", which involves mentoring and training the Iraqis and not actually going on patrols.
Meanwhile, Britain's consul general in Basra, Richard Jones, has told the BBC that local people are scared that all-out war could break out between rival militias once Britain has handed over security to local forces.
News of possible cuts in troop levels will lead to more speculation that Gordon Brown is on the verge of calling a snap election.
Mr Brown has prepared for many weeks to announce that British troops will finally be able to hand over the last of four provinces to Iraqi forces to control.
The Ministry of Defence has already said the handover of Basra province is due this autumn.
BBC political editor Nick Robinson said he understood that ministers had discussed a number of radical options in recent weeks.
One was to withdraw British forces from Basra altogether and move them to the relative safety of a US and an Australian base elsewhere.
Another was to withdraw troops to a base inside Kuwait.
Both would have allowed significant troop reductions and, politically, would have signalled a significant break in UK policy, our correspondent added.
But both options were rejected.
As a result, British forces are likely to stay in Basra for a significant period of time - possibly for as long as two years.
But our correspondent said a cut was being considered because fewer British troops would be required for force protection and they would be facing fewer dangerous situations.
Such a reduction would not take place immediately but in the foreseeable future, he added.
At the end of August, Mr Brown ruled out setting a timetable for withdrawing UK troops from Iraq, saying it would undermine their "important job" there.
The prime minister has always said that decisions on the future size and strength of British forces in Iraq would "continue to depend on conditions on the ground".
He was speaking ahead of the September handover by 550 soldiers of Basra Palace to Iraqi control.
Those soldiers joined 5,000 troops at the airport - the UK's last base in the city - and 500 soldiers have since been withdrawn from the country.
Meanwhile, civilians in Basra have described the city to the BBC as a place of fear where assassination and intimidation are common.
They described the parties and militias now vying for control of the city as resembling "Shia Taleban".
Academics are killed or intimidated into silence and women threatened with death if they do not wear conservative Islamic dress, they say.
Mr Jones, the consul general, said "dark forces" had infiltrated the police but insisted a new security chief would be able to purge their ranks.
He said that, as residents contemplated the handing over of security this autumn, they also feared all-out war between rival militias.