Around 1,600 British troops will return home from Iraq in the next few months, reducing the deployment of the UK force in the country to 5,500 by the end of the summer, Tony Blair said today.

The announcement came as the Ministry of Defence confirmed that Prince Harry would find out tomorrow whether he was being deployed to the country.

The Prime Minister said that the British force, which is based in and around Basra in southern Iraq, could shrink further by the end of the year but that soldiers would remain in Iraq into 2008 and "for as long as we are wanted and as long as there is a job to do".

Mr Blair told the House of Commons that the recent completion of Operation Sinbad, the security and reconstruction plan conducted in Basra over the past six months, had left Iraq's second largest city relatively secure and enabled around 300 reconstruction projects to get underway.

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Although he conceded that Basra was "still a difficult and sometimes dangerous place", the Prime Minister said that the main acts of violence were now perpetrated against British forces, rather than among the Iraqi population, and that it was now safe for the Iraqi police and army to control security in the province.

"Increasingly our role will be support and training, and our numbers will be able to reduce accordingly," he said. "What all of this means is not that Basra is how we want it to be. But it does mean that the next chapter in Basra’s history can be written by Iraqis."

"The speed at which this happens depends, of course, in part on what we do, what the Iraqi authorities themselves do, but also on the attitude of those we are together fighting," he added.

Mr Blair said that the British force, which numbered 40,000 during the invasion four years ago and was 9,000-strong two years ago, would fall from 7,100 to 5,500 in the coming months as the Iraqi Government prepared to assume total control of Basra province.

But he stressed: "None of this will mean a diminution in our combat capability."

The major logistics base at Shaibah, just outside Basra, will be handed over to the Iraqis and that the British mission will then be headquartered at Basra airport, with its main emphasis on training Iraqi soldiers, securing supply lines and the border with Iran and providing support, when needed, in operations against extremists.

A further 500 soldiers could return by the end of the summer following the planned handover of Saddam Hussein's palace in Basra to Iraqi authorities, Mr Blair said. The reduction will make Britain's force in Iraq smaller than the deployment to Afghanistan, which is scheduled to top 6,300 by September.

The Prime Minister said that the handover of Basra would follow the successful transfer of al Muthanna and Dhi Qar, the two southern provinces already delivered by British troops to Iraqi control. He said he hoped that Maysan, the fourth province, whose handover has been quietly delayed because of continuing violence, would also happen this year.

Mr Blair said that he had discussed the drawdown of British forces with the Iraqi Prime Minister, Nouri al-Maliki. He also agreed the withdrawal with President Bush by video-link yesterday morning, according to White House officials.

A spokesman for the US National Security Council, Gordon Johndroe, said last night that the reduction in the force was seen by Washington as a "sign of success" despite its contrast with Mr Bush's current tactic of increasing the American deployment to Iraq because of the endemic sectarian fighting in Baghdad.

"While the United Kingdom is maintaining a robust force in southern Iraq, we’re pleased that conditions in Basra have improved sufficiently that they are able to transition more control to the Iraqis," Mr Johndroe said.

This morning, Dick Cheney, the US Vice-President, agreed, saying that he saw the British decision as "an affirmation of Iraq, where things are going pretty well".

Speaking in Japan to ABC News, Mr Cheney said: "I talked to a friend ... who had driven the other day from Baghdad to Basra in seven hours, found the situation dramatically improved compared to where it was a year or so ago". That, he said, "validated the British view that they had made progress and they can reduce their force levels".

Mr Blair's statement comes 24 hours before Des Browne, the Defence Secretary, announces the next rotation of units in Iraq, in which Prince Harry could be sent to the country.

The Prince's regiment, the Blues and Royals, is among those expected to be deployed as 1 Mechanised Brigade replaces 19 Light Brigade for a six-month tour of duty in southern Iraq. Despite concerns for his safety and his attractiveness as a target for extremists, Prince Harry has stated his intention to serve on the battlefield if his unit is sent into combat.

An MoD spokesman said the decision over whether Prince Harry will go to Iraq would be announced tomorrow.

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