Gordon Brown prepared the way today for significant troop cuts in Iraq next year as British forces finish their work training the Iraqi army.
In a Commons statement on the final day of the parliamentary session before MPs break for the summer, the Prime Minister said he expected to see a "fundamental change" in the British mission in the early months of 2009.
Officials said details of any draw down of British forces would have to await a statement by Defence Secretary Des Browne in the autumn when the next six-monthly troop rotation is due to be announced.
However Mr Brown's upbeat assessment of the situation underlined the hope among military chiefs that the pressure on the forces - engaged on two fronts in Iraq and Afghanistan - can soon be eased.
The Prime Minister said that the security situation in Basra had been "transformed" by Iraqi Prime Minister Nouri al-Maliki's Operation Charge of the Knights against the militias in the city last March.
At the same time, the main combat training phase of the Iraqi Army 14th Division was expected to be completed around the turn of the year and British commanders believe that the division will be fully trained by the early months of 2009.
The improved security situation also means local government elections should be able to take place before the end of the year while the Basra Development Commission - co-chaired by British businessman Michael Wareing - is expected to publish its plan for the economic reconstruction of the city in the autumn.
Mr Brown said military commanders were now confident that they would finally be able to hand over control of Basra Airport - where the 4,100-strong British force is based - by the end of the year.
"As we complete these tasks - and as progress continues across these different areas - we will continue to reduce the number of British troops in Iraq," he told MPs.
"Of course, future decisions will be based - as I have always said - on the advice of our military commanders on the ground.
"But just as last year we moved from combat to 'overwatch', we would expect a further fundamental change of mission in the first months of 2009."
Mr Brown came under fire from Tory leader David Cameron, who attacked him for announcing last October that the British force would be cut to 2,500 from the spring of this year.
"These are not abstract numbers, these are not abstract announcements, these are people with families and responsibilities who are already coping with the consequence of overstretch and they deserve the very best treatment, not spinning over numbers and announcements," he said.
The Prime Minister said that their had been a "pause" in the troop withdrawals so that they could support Operation Charge of the Knights and he accused Mr Cameron of trying to make "political capital" out of the situation.