South Korea had deployed 3,600 troops in Iraq in 2004 as a show of support for its closest military ally, the United States, despite opposition among the public and within the ruling Uri Party.
The South Korean contingent is stationed in the northern region of Arbil and has been conducting peace keeping operations and reconstruction projects.
Parliament authorised the second one-year extension of the mission at the end of last year but with the cut of 1,000 troops, citing what the government said had been progress made in the mission.
The first reduction of 40 South Korean soldiers came as part of a troop rotation and the cut of 1,000 troops started on Monday is scheduled to be completed at the end of the year, the official at the Joint Chiefs of Staff said by telephone.
The US has the most foreign troops in Iraq, followed by Britain. South Korean forces have suffered no casualties in Iraq.