On Wednesday reports in UK media said Tony Blair, the British prime minister, was expected to announce plans to start pulling out British troops by the end of the year.
"What we are all trying to do is increasingly transfer responsibility for the security to the Iraqi security forces"
Alexander Downer, Australian foreign minister
Some reports said the first batch of 1,500 would return within the next few weeks.
Britain's move comes days after John Howard, Australia's prime minister, announced the deployment of more military instructors to train Iraqi forces, defying increasing domestic pressure to withdraw Australian troops.
In the wake of Wednesday's media reports, Australia's foreign minister was quick to reject suggestions that Howard was moving in the wrong direction.
Alexander Downer said Britain was only reducing troop numbers and not pulling out altogether.
"They will be leaving several thousand troops in Iraq and the important point to make here is the British are not withdrawing from Iraq.
"What we are all trying to do is increasingly transfer responsibility for the security to the Iraqi security forces," Downer said.
Australia has some 1,400 troops in and around Iraq, with the biggest force of several hundred based in the south of the country.