Defence Secretary Des Browne has praised the Iraqi army during a visit to central Basra for its work to crack down on Shia militia.
Mr Browne met stallholders and residents and said the city had been "transformed" by the security forces.
He had an "enormous sense of pride" in what they had achieved with the help of the British, he added.
It is the first time Mr Browne has visited central Basra since UK forces moved to a base outside the city.
He drove into Basra in a mastiff armoured vehicle with soldiers from the 1st Battalion The Royal Regiment of Scotland before spending almost an hour in the downtown area.
"Never have I seen the Iraqi army operating with such confidence and enjoying such support from the local people"
He also drank tea in a roadside cafe with Iraqi commander General Mohammed Juwad Huwaidi.
Mr Browne said: "As I walked through Basra's streets today, chatting to local people, it was clear to everyone that Basra is a transformed city.
"I felt an enormous sense of pride in what the Iraqi forces have achieved with our help."
Future plans
Everywhere there were "signs of a city returning to normality", he said.
"This is my ninth visit to Basra in the past two years and in that time there have been highs and there have been lows. I have seen progress and I have seen that progress stall.
"But never have I seen the Iraqi army operating with such confidence and enjoying such support from the local people."
But he also paid tribute to the "hard work" of the British military and said the focus for UK troops now needed to be "consolidating the considerable gains that have been made - through reconstruction, improved governance and economic development".
British troops supported Iraqi security forces during the operation Charge of the Knights which took place earlier this year.
It led to an announcement by authorities in April that control of all parts of the city had been taken from the Mehdi Army militia.
Last month, Mr Browne said British troop numbers in Iraq would only be reduced if "conditions allow".
About 4,000 UK soldiers are serving in Iraq and the plan had been to cut that number at the next rotation in May.
But Mr Browne said that while the situation on the ground was evolving "it remains prudent that we take time to fully consider further reductions".
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