Prime Minister Gordon Brown played up an improving security situation in Iraq on Tuesday and said the number of British troops there could continue to come down as key security tasks were completed.
Brown told parliament the 4,100 British troops serving in Iraq would stay for the "next few months", but said he expected to see a "fundamental change of mission" early next year.
Brown said attacks were down sharply in the southern region of Basra - from 200 a month last summer to around five a month in April - and that Britain's forces would now focus on training Iraqi troops before drawing down.
"We expect a further fundamental change of mission in the first months of 2009 as we make the transition to a long-term bilateral relationship with Iraq, similar to other relationships that our military forces have with other important countries in the region," he said.
"The defence secretary and our military commanders will now work with the Iraqi government to formulate agreement on the details of such a partnership - including the necessary legal basis."
Last year, Britain said it intended to reduce the number of troops it had in Iraq to about 2,500 by the beginning of this year, but that plan had to be put on hold after renewed violence erupted across southern Iraq, particularly in and around Basra.
Rather than again committing to an arbitrary deadline for troop withdrawals, Brown said he would now work with military commanders and allies such as the United States to determine the best time to withdraw the forces that remain.
The more cautious line follows a visit by Brown to Iraq last weekend, and talks with U.S. officials on the issue.
Ahead of a visit to London earlier this year, U.S. President George W. Bush made it clear the United States would rather Britain did not pre-announce deadlines for pulling its troops out of a country they invaded together in 2003.
With security showing signs of improving, Brown said Britain would now step up plans to boost business and investment in southern Iraq. The Basra Development Commission, a UK-led initiative, is due to announce investment plans later this year.
Before the end of the year, Britain is also expected to hand much of the responsibility for Basra airport to Iraqi authorities and complete the training of the Iraqi army's 14th division by the early months of next year.
"It is now right to complete the tasks we have set ourselves," Brown said.
