All British combat troops are to be withdrawn from Iraq by the middle of next year, leaving a few hundred military trainers to continue instructing an Iraqi army division based in Basra, according to proposals confirmed by defence sources yesterday.

The British sources also said that the Government had no plans to maintain a permanent base in Iraq, although they emphasised that no final decisions had been taken.

Details of the new British personnel structure are to be negotiated in the status-of-forces agreement to be signed with Baghdad. Yesterday The Times disclosed, after an interview with Hoshyar Zebari, the Iraqi Foreign Minister, that all American combat troops are to be withdrawn from Iraq within three years.

In his first comments since handing over command of British Forces in Basra on Tuesday, Major-General Barney White-Spunner said that the troops in Iraq — 900 inside Basra but most of the 4,100 based outside the city — had nearly completed their mission. “I think we're getting close to what we intended to do in southern Iraq,” he said.

Gordon Brown announced last October that he planned to reduce troop levels to 2,500 by the spring of this year but this decision was put on hold when Operation Charge of the Knights was launched against Shia militia by thousands of US-backed Iraqi troops in March.

No British troops had been in Basra for six months because of a secret deal with the Shia militia under which all the soldiers withdrew to the airport base outside the city.

After the large-scale operation, which drove many of the extremists out of Basra, 900 British military trainers were sent back into the city to embed with elements of the Iraqi Army's 14th Division. Now the plan to cut British troop levels is being revived but with an even more drastic reduction in numbers. With no combat troops in place, the British military presence will consist solely of a training team supported by a small protection force.

General White-Spunner said that foreign companies were beginning to show interest in investing in the area. Speaking at the Ministry of Defence, he said that Iraqis, Kuwaitis and other Middle Eastern businessmen were buying properties. One house in a favoured residential part of the city had increased in value from $30,000 (£16,000) to $90,000 since March.

When the operation was launched, with the arrival of 30,000 Iraqi troops from Baghdad and 900 American soldiers and Marines, they found that some units of the 14th Division had run away from the Shia al-Mahdi Army extremists who had taken control of the city. General White-Spunner said that about 1,500 “violent extremists” remained in Basra but he felt sure that the people of the city would never again allow the Shia militia to gain control.

There were reports yesterday, however, of militia activity picking up again in Basra. Militia on motorcycles wielding guns have been seen in the city and a barber was murdered yesterday. General White-Spunner indicated that, despite British plans to reduce force levels in southern Iraq, “the US may want to put more American soldiers into Basra”. He said that there were currently about 650 American soldiers were in the city.

He added that it was wrong to think of Basra as “little Britain”. The city was “part of a [multinational] corps construct”, he said. A report in The Wall Street Journal yesterday claimed that the US was planning to take over Basra from the British next year.

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