Under the plan, the British contingent could be reduced from 8,500 to 3,000, with some soldiers coming home as soon as October and more returning in April. US numbers could also be more than halved over the same period.
The suggested "military drawdown" is set out in a leaked memo from Mr Reid to Tony Blair. The Ministry of Defence has confirmed that the document is genuine, stressing that it is one of several papers setting out "various scenarios" affecting troop presence in Iraq.
Ministers have always maintained that Allied soldiers will not leave the country until Iraqi security forces are considered capable of taking over. But the paper discloses that a detailed "exit strategy" is being considered by the MoD and proposes a possible timetable.
British troops patrol the mainly Shia south of the country, which has been relatively stable and has been spared the worst of the continuing insurgency.
The paper, entitled "Options for future UK force posture in Iraq", says there is a "clear UK military aspiration" to transfer the provinces of Muthanna and Maysan to Iraqi control in October and the other two UK-controlled provinces the following April.
"This should lead to a reduction in the total level of UK commitment in Iraq to around 3,000 personnel, ie small scale," it says. The paper, marked "UK eyes only", says Washington is also discussing plans to cut its force of 176,000 to just 66,000 by early 2006.
"There is a strong US military desire for significant force reductions to bring relief to overall US commitment levels.
"Emerging US plans assume 14 out of 18 provinces could be handed over to Iraqi control by early 2006," Mr Reid writes.
But in an observation that will embarrass Whitehall, he says the Americans are divided over whether to cut troop numbers so sharply. The Pentagon wants a "relatively bold reduction", while US commanders in Iraq favour a more cautious approach, he discloses.
The memo, obtained by The Mail on Sunday, estimates that the British withdrawals could cut the annual cost of policing Iraq from £1bn to £500m by the end of 2006. Mr Reid adds: "We will need to consider handling of other allies. The Japanese reconstruction battalion will be reluctant to stay if force protection is solely provided by Iraqis. The Australian position may also be uncertain."
Mr Reid made little attempt to disguise his irritation over the leak. He said yesterday: "We have made it absolutely plain that we will stay in Iraq for as long as is needed.
"We have always said that it is our intention to hand over the lead in fighting terrorists to Iraqi security forces as their capability increases.
"We therefore continually produce papers outlining possible options and contingencies.
"This is but one of a number of such papers produced over recent months covering various scenarios. This is prudent planning. I stress again that no decisions on the future force posture of UK forces have been taken."Reuse content