A plan to reduce the number of troops in Iraq and Afghanistan means that the Pentagon's war budget can be cut by $42 billion in fiscal year 2012.

That's a 26 percent decrease from fiscal 2011, when $159 billion was budgeted.

"The proposed $117 billion for fiscal year 2012, which begins Oct. 1, would be the lowest expenditure for the wars since fiscal 2005," Bloomberg's Tony Capaccio reported.

The cuts reflect the Obama administration's plan to reduce the number of troops in Afghanistan and Iraq, as well as new rules on what can be included in the war budget.

"That’s the largest year-to-year decrease in total war funding" since the start of the war in Afghanistan, the nonpartisan Center for Strategic and Budgetary Assessments' Todd Harrison told Bloomberg.

"With a year-to-year reduction in war funding of this magnitude, it appears to signal an intent to continue the withdrawal from Iraq and to begin reducing troops levels in Afghanistan during fiscal 2012," he said.

In early January, Defense Secretary Robert Gates surprised lawmakers by announcing that the Pentagon would cut overall spending by $78 billion over the next five years.

The cuts will force the Army and Marine Corps to reduce the number of troops on active duty and eventually freeze military spending for the first time since the terrorist attacks of Sept. 11, 2001.

The $78 billion comes in addition to $100 billion in cuts that Gates directed the Pentagon to find in May. The defense secretary said that the armed forces had successfully found $100 billion in savings over the next five years and the Army, Navy and Air Force would get to reallocate that money to combat-related projects.

The Pentagon has about 144,000 troops deployed in Iraq and Afghanistan -- the lowest number since 2006, according to the nonpartisan Congressional Research Service.