Speaking during a visit to Basra, Douglas Alexander, the International Development Secretary, said that a "significant draw-down" of troops was on the way.
Final negotiations are said to be underway with the Iraqi government, with Gordon Brown expected to make an announcement before Christmas.
Iraq has been pressing for the speedy withdrawal of all foreign troops, and Barack Obama, the President-Elect, is keen to pull American forces out of the country as soon as possible.
Mr Alexander said: "We'll continue to work closely with the government of Iraq but we will see a significant drawdown of British troops as a recognition of the progress and success that's been enjoyed here in Basra.
"We are looking ahead to the first half of 2009 but our focus on the moment is securing the possibility that I've seen today which is for further jobs, further investment, further prosperity."Read the full article on the Telegraph.co.uk web site