Britain said on Wednesday it could hand back Basra province to Iraqi control early next year, for the first time putting a date on a major step towards reducing its presence in the country.
"The progress of our current operation in Basra gives us confidence that we may be able to achieve transition in that province ... at some point next spring," Foreign Secretary Margaret Beckett told parliament.
Britain, Washington's biggest ally in the Iraq war, has previously refused to set timetables for withdrawal. But a US defence official said last month Britain hoped to withdraw troops within 12 months to focus on the war in Afghanistan.
With troops in both countries, Britain's forces are stretched, particularly as soldiers in southern Afghanistan are embroiled in a fierce struggle against a revitalised Taliban - which says it is planning a fresh offensive when winter ends.
Beckett's announcement comes amid growing opposition to the war in Britain and as US President George W. Bush rethinks strategy in Iraq after a crushing mid-term election defeat.
Britain has 7,200 troops in southern Iraq, mostly stationed in and around Basra. The city, Iraq's second biggest, remains dangerous with Shi'ite factions battling each other for control and British troops sometimes targeted.
Britain has handed over authority to Iraqi forces for two of the four southern provinces - Muthanna and Dhi Qar - it was given responsibility for after the US-led invasion in 2003. Maysan province is due to be ready for handover in January.
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