British troops will be out of Iraq by the middle of next year, Sky News has learned.

Final negotiations are under way with the Iraqi government, and Prime Minister Gordon Brown is expected to make an announcement by Christmas.

Iraq is pressing for the withdrawal of all foreign troops and is in talks with the Americans about their role once the United Nations mandate expires at the end of this year.

British forces have been based in the south of the country since the invasion in 2003.

The situation has changed dramatically in Basra since the Iraqi government took on the local militias earlier this year. As a result, the British presence in Basra could be all but over by next summer.

Britain's International Development Minister, Douglas Alexander, is there flying the British flag.

Alexander said: "We'll continue to work closely with the government of Iraq but we will see a significant drawdown of British troops as a recognition of the progress and success that's been enjoyed here in Basra….

"We are looking ahead to the first half of 2009 but our focus on the moment is securing the possibility that I've seen today which is for further jobs, further investment, further prosperity."

More immediately, it is believed the process of handing over Basra airport and airspace to the Iraqis will begin within weeks. And American forces will soon take over camp security.

It is also thought that large security projects will be taken over by the Iraqis and Americans, working together.

Major James Gasson-Hargraves, a commander there, says the Iraqis are eager to take control.

"The reality is they are the sheriffs of this town, they own it. The townspeople come to them with their issues, not to me. I'm merely here in the background as support and the Iraqis are on top of where they're going."

Back in March, the Iraqi government's so-called 'charge of the knights campaign' to clear out the militias that had taken over the city was the catalyst for change.

It also convinced some in Baghdad that the British forces were dispensable.

Five years after their arrival there the end game is now being played out.

Click here to read the story from Sky News.