British troops have been in control of Musa Qala since 2007
UK forces are to hand security powers for the Afghan district of Musa Qala to US troops in the coming weeks, Defence Secretary Bob Ainsworth has said.
It comes with the arrival of thousands more US soldiers, allowing UK troops to be moved to other parts of Helmand.
Mr Ainsworth said transferring control was the UK's "next logical stage".
Nato forces captured Musa Qala in 2006, before tribal elders took control in a peace deal. The Taliban returned and it had to be recaptured in December 2007.
In a statement on Thursday, the defence secretary told MPs: "The transfer will allow UK troops to be re-deployed from Musa Qala to central Helmand, the most heavily-populated area of the province, where the majority of our troops are already based."
He said the "rebalancing" was possible because the number of Nato personnel in Helmand had increased from around 7,700 to more than 20,000 during the past year.
The decision was taken by the alliance's top commander in Afghanistan, US General Stanley McChrystal, after consulting with Britain's General Nick Carter.
Mr Ainsworth said it would allow UK personnel to focus on training Afghan security forces.
BBC security correspondent Frank Gardner said handing over control to the Americans would be an "emotional" thing.
"The name Musa Qala is etched in the consciousness of many soldiers and their families. It's where some of the fiercest fighting took place in 2006.
"Brits have died to get Musa Qala."
UK military spokesman Maj Gen Gordon Messenger said: "We are handing over a going concern, a success story. This is not about transferring a failing enterprise, there is real progress in Musa Qala."
The 500 soldiers from the Household Cavalry currently based in Musa Qala are expected to be re-deployed to support the British presence around Babaji in central Helmand.
British forces in central areas of the province have been taking part in Operation Moshtarak, an offensive designed to clear Taliban strongholds.
Maj Gen Messenger said commanders were considering transferring other parts of Helmand to US forces, including Kajaki in northern Helmand.
Some 23 UK service personnel are believed to have been killed in the Musa Qala area, the latest being Kingsman Sean Dawson, 19, from Stalybridge, Greater Manchester.
The soldier, from 2nd Battalion, The Duke of Lancaster's Regiment, is believed to have been caught up in a "friendly fire" incident on 14 February.
Mr Ainsworth said: "Through their professionalism and courage, and that of their colleagues, insurgent activity in the district centre has been contained."
British forces had spent months defending the area in 2006 before the ill-fated peace deal, which was criticised by US commanders and diplomats.
Elders said they would keep Taliban fighters out of the town centre and run security through their own auxiliary police unit.
However, the peace lasted just 142 days and, under Taliban control, the drug warlords flourished as poppy production increased.
Des Browne, the defence secretary at the time of the battle to retake the town, said it had taken on "iconic importance".