Defence Secretary John Hutton signalled yesterday there would be a "fundamental change" in Britain's role in Iraq early next year as he made his first visit to Baghdad.
He held talks yesterday morning with Iraqi prime minister Nouri Maliki before meeting the small number of UK forces stationed in the Iraqi capital.
Afterwards, he said "significant progress" had been made in Iraq in recent months and security was improving across the country.
"We want, in the first months of next year, to see a fundamental change in our military mission in Iraq, moving towards an increased focus on military training and education as part of a broad-based bilateral partnership," he said.
"We agreed to work together intensively to put in place, by the end of this year, a formal agreement in relation to the status of UK forces in Iraq which will underpin this change."
The trip comes a fortnight after Mr Hutton, the former business secretary, was given the defence brief in Gordon Brown's reshuffle.
After talks with Mr Maliki, the Defence Secretary spoke to members of the 2nd Battalion The Royal Anglian Regiment and other UK service personnel based in the Baghdad Support Unit.
Most of Britain's 4000-strong deployment to the country is stationed in Basra, in the south of the country, where Mr Hutton is heading today.
Mr Hutton said: "I wanted to take the opportunity to see what our people - civilian and military - are achieving out here and to get a clear sense of the UK's engagement with Iraq, both current and future.
"Throughout the country security and prospects are improving and I am extremely proud of what our forces have achieved - they continue to do a tremendous job."
On the Prime Minister's most recent visit to Iraq, in July, he told troops they were bringing the UK's work in the country to its conclusion.
While refusing to set a timetable for troop withdrawals, he told those at Basra Air Station: "You are now working with the Iraqi forces to train them up so that they can take over their responsibilities, so that we can complete our work here to bring Basra to democracy, security and prosperity."
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