The extension was approved on Thursday at a meeting of government and ruling party officials, Liberal Democratic Party executive Toranosuke Katayama said.
The cabinet was to meet later in the day to sign off on the decision.
Japanese Prime Minister Junichiro Koizumi, a close ally of US President George Bush, has expended considerable political capital to support the US-led war in Iraq and sent about 550 troops to the southern Iraqi city of Samawa.
Koizumi's decision to send troops
to Iraq has divided the nation
The mandate for the current one-year deployment expires on 14 December. Critics say the mission violates Japan's pacifist constitution, even though the military personnel are engaged solely in rebuilding and humanitarian work.
Koizumi's government has been studying an overhaul of the pacifist constitution, with the Iraq deployment seen by analysts as a signal that Tokyo ants a more active role in world affairs.
But opposition leaders want the troops to return after the current deployment ends, and a Nihon Keizai newspaper poll last month said 61% of Japanese oppose extending the mission due mostly to concern for the troops' safety.