Robert Gates, the US defence secretary, said on Monday he hoped the shakeup will show congress that the Pentagon will spend wisely during tough economic times and address long-standing concerns about wasteful expenditure.
He however warned against cutting down on overall defence budget, which stands at nearly $700bn including war spending.
"If you were to graph the defence budget going back the last 40 or 50 years, it would look like the EKG of a fibrillating heart"
Robert Gates, US defence secretary
"My greatest fear is that in economic tough times that people will see the defence budget as the place to solve the nation's deficit problems," Gates said.
"As I look around the world and see a more unstable world, more failed and failing states, countries that are investing heavily in their militaries ... I think that would be disastrous."
Gates also asked the armed forces to identify military bases for closure and said he was shutting down the US Joint Forces Command in Suffolk, Virginia, which has 2,800 US military and civilian staff and about 3,000 contractors.
Barack Obama, the US president, in a statement praised the announcement as part of Gates' efforts to "reform the way the Pentagon does business".
"The funds saved will help us sustain the current force structure and make needed investments in modernisation in a fiscally responsible way," said Obama.
Gates' plan was similar to one suggested last month by the Defence Business Board, a panel of company executives who advise the Pentagon.
|The overall US defence budget stands at nearly $700bn including war spending [AFP]
The panel identified the Virginia command as contributing to much of the contractor bloat because it had more contractors than government employees on its payroll.
Pentagon officials did not say how much the move will save but described the measures as part of a previous effort to free up more than $100bn to sustain US forces and upgrade its arsenal over the next five years.
Gates said it was important not to repeat past mistakes where economic troubles or "the winding down of a military campaign leads to steep and unwise reductions in defence".
"If you were to graph the defence budget going back the last 40 or 50 years, it would look like the EKG of a fibrillating heart," he said.
"What we need is modest, sustainable growth over a prolonged period of time that allows us to make sensible investment decisions."