The British prime minister said the focus of British troops in Iraq would shift predominantly to training and mentoring.
About 500 British logistics and support staff will be moved outside Iraq, but in the Middle East region, to support the remaining troops, Brown said. Officials said they are likely to be based in Kuwait.
Brown also promised a resettlement package for some Iraqi civilians who had worked with British forces for more than a year.
Local staff including interpreters and translators who have worked for Britain for 12 months or more will be eligible for financial and other support, he said.
Hoda Abdel-Hamid, Al Jazeera's correspondent in Iraq, said a likely consequence of British troop reduction in Basra would be heightened fighting between rival Shia militias.
Mustafa Alani, a defence analyst with the Gulf Research Centre in Dubai, said the UK would be leaving behind a mini civil war.
"Actually the British forces' area of control was under the domination and control of the militia from day one," he said.
"The number and size of the British forces was always too small. So the British strategy was to turn a blind eye to the militia control and the Iranian influence.
"Basra is very bad now. We are talking about Shia-Shia conflict, Shia-Shia civil war. A mini civil war now in Basra, Nasiriya, Amarra.
"Certainly it's going to get worse. The Americans have no military capability to fill the gap. That means the south of Iraq will be left to the rule of the militia. And the militia have to intensify their war to prove which is stronger."
Brown's speech came as a series of bomb attacks in Iraq killed at least 21 people, including 10 civilians near a police station in Baghdad.
A car bomb killed two people near Poland's Baghdad embassy, five days after the Polish ambassador was wounded in a separate attack. The police station targeted was in a village near the city of Samarra, 100km north of Baghdad.
Nine others were killed by roadside bombs or car bombs across Iraq. One car bomb killed four people and wounded 10, including women and children, near central Baghdad's Technology University, police said.
Brown's address to parliament came soon after a new study claimed the US-led "war on terror" has been a disaster.
The prime minister visited Iraq last week where he said that 1,000 British troops would leave by Christmas. It later emerged that half of the cuts had already been announced.
The revelation prompted claims that he had manipulated the media for party political or electoral gain.
The Oxford Research Group, a UK-based global security think-tank, said in a report on Monday that the US and its allies, including the UK, should rethink their policy on Iraq and Afghanistan as it had been a "disaster".
The report, Towards Sustainable Security: Alternative Approaches to the War on Terror, said that western strategy since the September 11 attacks had failed to extinguish the threat from Islamist extremism and had even helped fuel it.
Some of the comments made in the Oxford Research Group report and by its author, Paul Rogers.
- Every aspect of the "war on terror" has been counterproductive.
- Whatever the problems with Iran, war should be avoided at all costs.
- The US-led war in Iraq was a "grievous mistake".
- The removal of the Taliban from power in Afghanistan has been of "direct value" to al-Qaeda.
- The policy of "extraordinary rendition" of suspects in third-party countries outside US legal jurisdiction created a useful propaganda weapon.
- The US and its allies need to better understand the roots of al-Qaeda and its support base.
Paul Rogers, the author of the report, said: "Every aspect of the war on terror has been counterproductive in Iraq and Afghanistan, from the loss of civilian life through mass detentions without trial.
"In short, it has been a disaster.
"Western countries simply have to face up to the dangerous mistakes of the past six years and recognise the need for new policies."
Also on Monday, anti-war protesters were given an 11th hour go-ahead to stage a march to the British parliament after police had earlier threatened to use a Victorian law to stop them.
The Stop the War Coalition said it had been given police permission to march from Trafalgar Square to parliament.
"The ban's been lifted," a spokesman for Stop the War said as an estimated 2,000 to 3,000 people gathered in Trafalgar Square.
Celebrities, veteran peace campaigners and MPs are expected to join the anti-war campaigners for the march down Whitehall.
'Weak and indecisive'
Ahead of his parliament address, Brown defended his decision not to call an early general election, rejecting criticism that it showed he was weak and indecisive.
Opponents have derided Brown, accusing him of stoking speculation of an early vote only to lose his nerve in the face of opinion polls showing the opposition Conservatives overcoming a big deficit or even in front of the ruling Labour party.
"Real strength and real decisiveness is making the long-term decisions about the future of your economy and ... about the future of your security and defence," Brown told a news conference, dominated by questions about his decision.
Political commentators said Brown, who initially impressed voters after taking over from Tony Blair in June, had scored a spectacular own goal, giving a boost to Conservative leader David Cameron.
The episode revived doubts about the character and decisiveness of the brooding Brown, famous for his mighty intellect but also for being paralysed by caution at key moments.
Brown said his decision at the weekend was not influenced by the polls and that he would have abandoned plans for an election even if Labour had been in the lead.
Questions over Brown's leadership come as frustration grows in the UK over the country's involvement in Iraq.
Ben Griffin, the first member of the British army's elite SAS to quit on moral grounds after tours in both Iraq and Afghanistan, told Al Jazeera there was a growing frustration among British troops in Iraq who he said were increasingly asking: "What are we doing here?"
He said: "Obviously the troops who have been told they are coming home are going to be pleased about it.
"I think there is a sense within the troops that if any more die, they will have died for nothing."
Roger Bacon, a Briton whose son, a major in the intelligence corps, was killed in Iraq in 2005, told Al Jazeera he thought it was time for British troops to return home.
"As far as I am concerned, get them out of the country. We have to withdraw," he said.
Source: Al Jazeera and agencies