The Iraqi government is to take responsibility for paying members of the country's Awakening councils, Sunni groups who had allied with US forces to fight al-Qaeda.
The government of Nuri al-Maliki, which is dominated by Shia religious parties, is to begin paying 54,000 Awakening members from Tuesday.
The Awakening groups emerged in 2005 when Sunni tribesmen, who had previously fought the US military and Iraqi government forces, allied with US forces, accepting arms, money and training.
There are about 100,000 Awakening fighters in Iraq and analysts say they are one of the main reasons for the recent marked reduction in violence in the country.
Mowaffak al-Rubaie, Iraq's national security adviser, told the AFP new agency that "the GoI (government of Iraq) will pay the first salary on the 31st October 2008".
The monthly bill of Baghdad's 54,000 Sahwas is around $15 million.
Control of the remaining Sahwas in central, western and north-central Iraq will be transferred gradually.
Al-Rubaie said Baghdad will continue to employ these men to expand the security gains.
"All volunteers are being carefully screened to ensure their physical abilities and background permit integration into the security forces. All will be treated fairly," he said.
A Pentagon report, submitted to congress on Tuesday, cited a 77 per cent decline in violence in Iraq, compared with the same period last year, saying "progress" had been made in Iraq even as US forces have drawn down.
However, figures from the Associated Press show that the number of Iraqi security forces killed in September rose to 159 - a third higher than the same period last year - even as US troop deaths and civilian casualties for the same period fell.
The US fears the Iraqi government will be too slow to integrate the Sunni fighters.
The report warned there was a possibility that attacks could rise in the run-up to provincial elections if Sunnis perceive al-Maliki's government is hindering them.
Absorbing the Awakening groups into the Iraqi security forces and into civilian jobs has become "a significant challenge" and "the slow pace of transition is a concern", the Pentagon report said.
George Bush, the US president, announced earlier this month that the US will withdraw about 8,000 US troops from Iraq by February, with about half leaving before the end of 2008.
But the US is also planning deployments next year that will allow the US to keep the number of troops largely steady there through much of 2009.
There are currently about 152,000 US soldiers in Iraq.
Even as violence in Iraq has died down in the past year, cautious Pentagon leaders have resisted insistent public and congressional calls for more rapid and hefty troop pullouts.