The unicameral National Assembly voted on Friday by 110 to 31 to extend the country's troop deployment in the northern Iraqi region of Arbil by one year until the end of 2006 but cut the contingent to 2300 from 3200. Seventeen members abstained.
The United States has the largest contingent of foreign troops in Iraq and Britain the second largest.
The government-submitted bill said, the country's commitment to its alliance with the United States was a key reason for extending the mission.
Ahn Young-keun, a ruling Uri Party member told the assembly: "We believe the deployment will contribute to peace and reconstruction of Iraq, stability in the Middle East and to reaffirming the South Korea-US alliance."
South Korea has about 690,000 troops, a large force meant to deter North Korea, whose military is more than one million strong.
There are also some 30,000 US troops in the South, a legacy of the 1950-53 Korean War that ended in a truce rather than a peace treaty.
Despite opposition from liberal Uri Party members and anti-war groups, Roh Moo-hyun, South Korea's president, has consistently backed the Iraq deployment.
Roh Moo-hyun has consistently
backed the Iraq deployment
The troops will remain in Iraq as long as they are needed under the mission set out by US-led coalition forces, he has said.
The cut, which will begin in early 2006, could drop South Korea's unit to the fourth largest after Italy.
Italy has said it will reduce its 2900 troops in Iraq by 10% in January and plans to pull out its troops by the end of 2006.