Defence Minister Yoon Kwang-ung reported the plan to withdraw about 1000 soldiers from Iraq to the ruling Uri Party on Friday.
About 3200 South Koreans are stationed in northern Iraq to help rehabilitate the country. Seoul provides the second-largest number of soldiers after Britain in support of the US invasion.
The announcement came a day after South Korean President Roh Moo-hyun met US President George Bush in the South Korean city of Gyeongju, where the leaders insisted their countries' alliance was strong and agreed to work together to curb North Korea's nuclear weapons ambitions.
The Defence Ministry said it would include the troop reduction plan when it seeks parliamentary approval for extending the deployment in Iraq, as it is required to do each year.
"We judge it's possible to withdraw some of the troops, considering the scale of projects scheduled for next year, the status of stabilisation of Iraq and the trend in coalition forces," Yoon said in a meeting with the ruling party, according to South Korea's Yonhap news agency.
Meanwhile, the US has reacted with surprise to word that South Korea could cut its presence in Iraq by one-third in the first half of 2006, saying it had no official confirmation from Seoul.
"We judge it's possible to withdraw some of the troops, considering the scale of projects scheduled for next year, the status of stabilisation of Iraq and the trend in coalition forces"
South Korean Defence Minister
"At this point, the United States government has not received official confirmation of this reported withdrawal," said Fred Jones, a spokesman for Bush's National Security Council, on Friday.
Jones said the issue had not been raised by Roh when he met Bush on Thursday. Bush had praised Seoul for its participation in the US-led war in Iraq.
Jones suggested that Washington knew of possible upcoming changes in South Korea's troop presence in Iraq but had yet to be told officially about possible cuts.
"We understand that the [South Korean] National Assembly will be looking at various options as the nature of coalition assistance to the government of Iraq evolves, but the Republic of Korea has not conveyed any change in its coalition presence to the United States," Jones said.
Bush praised South Korea's presence in Iraq after meeting Roh, saying: "It's not only a gesture of friendship, but it's a gesture of understanding that a democracy in the heart of the Middle East will help bring peace to others.
Bush and Roh have insisted
their alliance is strong
"We're bound by our love of freedom. And those commitments by your government indicate how close we are in terms of promoting the values of freedom and democracy," said the US president.
In January 2004, South Korea's parliament approved the deployment of up to 3600 soldiers to northern Iraq for relief and rehabilitation efforts but not for combat missions.
The deployment, which was renewed in November 2004 for another 12 months, needs annual parliamentary approval.