A leading militia spokesman says Iraq's government has decided to cut the number of state-financed paramilitary forces due to a shortage of funds.

Karim al-Nouri, the spokesman for the Popular Mobilization Forces, an umbrella group made up predominantly of Shiite militias, told the Associated Press that around 30 per cent of paramilitary fighters were expected to be laid off. Some 130,000 fighters in Iraq are affiliated with pro-government paramilitary forces.

The government's budget has been squeezed by falling oil prices.

Shiite militias have played a key role in battling the militant Islamic State group, particularly following the virtual collapse of Iraq's army in 2014.

Al Nouri said the decision would not affect the fight against IS. Cuts will also cover the non-combat troops providing administrative and logistical support.