Almost 4,000 British troops will leave Afghanistan by the end of next year as efforts continue to hand over control to the country's own security forces.
The removal of around 3,800 soldiers in 2013 will be the first step as coalition forces look towards a complete withdrawal of combat troops by the end of 2014.
David Cameron announced the move during Prime Minister's Questions and said it reflected the progress being made by Afghan National Security Forces (ANSF)
Exact details of how troops will leave are yet to be announced but it is likely they will not be replaced when they leave at the end of their usual rotations.
Some 500 British troops are returning from Afghanistan on Wednesday, taking numbers to 9,000. This will now shrink to 5,200 by the end of 2013.
Mr Cameron made clear that there would still be a British presence in Afghanistan beyond 2014, as support for national authorities.
Britain will also contribute £70m-a-year to help pay for the ANSF and another £70m-a-year in international aid for the country, he told MPs.
Defence Secretary Philip Hammond added: "We have consistently said that there will not be a cliff-edge reduction in troop numbers at the end of 2014.
"This gradual drawdown is firmly in line with the planning of our Isaf partners and the advice of military commanders.
"UK forces will continue to operate alongside their Afghan counterparts, albeit in lower numbers, until our combat operations cease at the end of 2014.
"There remain huge challenges ahead for the Afghan people. Our combat mission is drawing to a close, but our commitment to the Afghan people is long term."
The decision was taken after a meeting of the National Security Council where the chief of defence staff General Sir David Richards outlined a number of options.
Mr Cameron also spoke to US President Barack Obama for about an hour on Tuesday, during which the leaders agreed plans for 2014 are "on track".
The US currently has 68,000 troops in Afghanistan and an announcement about its own withdrawal plans - put on hold during the presidential election - is expected within days.
Military officials insist the plans are a sign of increasing and sufficient ability among Afghan forces despite fears of infiltration by the Taliban.
Over 75% of the population is now being secured by native authorities and at least 80% of patrols are being led by them.
There is still concern about the lack of suitable leaders in the country, which has prompted the creation of an Afghan Officers Academy in Kabul.
There is also a strong economic argument for withdrawal because of the vast cost of the conflict, reported to be £2.5bn-a-year.
Chancellor George Osborne is believed to be one of the Cabinet ministers keen to see troops return as soon as possible in order to free up money to spend elsewhere.
All Nato combat operations are due to finish at the end of 2014 with local forces taking control.
But earlier this month the Pentagon published a report which found that only one of the Afghan National Army’s 23 brigades is capable of operating independently.
It also concluded that the Taliban remains resilient, which has been clear from a spate of so-called "green on blue" attacks this year - when rogue Afghan soldiers kill Nato colleagues.
To date, some 438 British soldiers and civilians have died since the start of operations in Afghanistan in October 2001.