Japan is considering May as the date to end the military deployment, Tokyo's first since the second world war to a nation where fighting is underway, Kyodo News reported.
The agency said the government told a ruling party leader on Wednesday that the two-year-old mission, which is due to end on 14 December, would be extended by a full year to give the government more leeway on the time of withdrawal.
Japan is forced to make a decision on the domestically unpopular deployment at a time when the United States, its close ally, is hearing mounting calls for a quick pullout from Iraq.
The Mainichi Shimbun newspaper said the government decided on the withdrawal timetable due to the uncertain security situation in Iraq but on the assumption that the country's new government will be operating smoothly by late 2006.
Barred from combat
Jiji Press reported earlier that Japan planned to keep deliberating on when to end its troop deployment even after extending the mission for a year.
Japanese troops, who are barred from combat under the US-imposed 1947 constitution, have not suffered any casualties or even fired a shot in their deployment in the relatively safe southern Iraqi city of Samawa.
The reconstruction mission has been seen as a way for the pacifist nation to exert global clout beyond being an aid donor.
The ruling Liberal Democratic Party on 22 November proposed the first revision of the constitution that would recognise Japan has a military - known currently as the Japan Self Defence Forces - paving the way for more peacekeeping operations overseas.