Chief of Staff Nikola Kolev made the announcement on Wednesday.
State radio quoted Kolev as saying some of the Bulgarian contingent's duties would be taken over by other occupation troops because of increased tension among soldiers after the bombing.
He did not say which duties the Bulgarians would give up.
The Balkan country, a staunch supporter of the US-led war against Iraq, has sent a 480-strong light infantry battalion to serve in the Polish-led force in Iraq's holy city of Kerbala.
Bulgaria plans to rotate the troops in Kerbala with another 480 soldiers by mid-February, but dozens of the new unit have decided to abandon the mission after the Kerbala deaths.
Kolev and President Georgi Parvanov went to a military base in Kazanlak, central Bulgaria, on Wednesday to kick off the rotation of Iraq-based troops. The troops are volunteers from the NATO-candidate country's professional army.
The Kerbala deaths have sparked debate in Bulgaria about security at their base in the Polish sector, with many asking why the troops had not been better protected.
Earlier this month 40 soldiers of the new Iraq-bound unit said they would quit but later their number grew to 62, despite raised payment and Sofia's attempts to boost morale.
On Tuesday the government raised daily pay to troops in Kerbala to $82-$90 from $62-$75 after soldiers demanded their compensation be doubled because of higher risk.