Prime Minister Gordon Brown has announced that the Iraqi province of Basra is to be handed over to Iraqi control within two weeks.
Gordon Brown has paid a surprise visit to Basra in Iraq
Mr Brown flew into Basra city on Sunday for an unannounced visit to UK troops.
He broke the news as he addressed servicemen and women at Basra air station, after holding telephone talks with Iraqi PM Nouri Maliki.
The remaining 4,500 British troops in Iraq will now focus their efforts on training local Iraqi forces.
UK troop numbers are set to be reduced to 2,500 from the spring.
Mr Brown told the troops: "I have just talked to Prime Minister Maliki and he asked me to pass on his thanks to you for what you have done to help rebuild the democracy of Iraq.
"It's because of all the operations we have done over the past few months that the security situation has not only improved, but he is now recommending we move to provincial Iraqi control within two weeks."
"There are now 30,000 Iraqi police and armed forces. As a result of that we can move to provincial control over the next few weeks."
December had been announced as being the deadline for the handover by ministers in October.
The prime minister arrived at the base aboard an RAF Hercules under the cover of darkness.
He added: "So the great venture that started with all the difficulties we face, that cost causalities, means we have managed now to get Iraq into a far better position.
"Not that violence has ended, but we are able to move to provincial Iraqi control and that's thanks to everything you have achieved.
"I know many of you will not be home for Christmas, but I do appreciate the spirit of service that means you are serving here the national interest at Christmas time."
Mr Brown also wished the troops a happy Christmas, paid tribute to their "professionalism, courage and patriotism" and said the "whole British people" were proud of their achievements.
He then went into private talks with senior British commanders at the base, which is headquarters of the Multi-National Division South East of the international forces in Iraq.
British officials said US commanders had been fully consulted and backed the proposed handover of Basra to Iraqi control.