The US will ship about 6,400 troops home from Germany and shift about 5,600 to other European countries, American defence leaders said on Wednesday.
The Pentagon gave details of a plan that will cost billions of dollars and take years to complete.
The decision fulfils US President Donald Trump’s announced desire to withdraw troops from Germany, largely because of what he said was Berlin's failure to spend enough on defence.
Some US troops will be sent to Italy, and in a major shift, US European Command headquarters and Special Operations Command Europe will move from Stuttgart, Germany, to Belgium.
The future of the plan is uncertain because it relies on support and funding from Congress, where some members oppose it.
And it may be ruled out if Mr Trump is not re-elected in the presidential election on November 3.
Politicians said the troop cuts were a gift to Russia fuelled by Mr Trump’s spite at Germany.
Defence Secretary Mark Esper defended the plan on Wednesday.
He said that while the move had been “accelerated” by Mr Trump’s orders, it promoted wider goals to deter Russia, reassured European allies and shifted forces east into the Black Sea and Baltic regions.
“We’re moving forces out of central Europe, Germany, where they’ve been since the Cold War,” he said.
Mr Esper said the plan would shift US troops east, closer to Russia “where our newest allies are".
But Mr Trump repeated on Wednesday that the reason for the shifts was that Germany was not spending enough on defence.
“We’re reducing the force because they’re not paying their bills," he said. "It’s very simple. They’re delinquent.”
Mr Trump said he might rethink the decision if Berlin “start paying their bills".
He has repeatedly accused Germany of failing to pay bills, which is is not accurate.
Nato members have pledged to dedicate 2 per cent of their gross domestic product to defence spending by 2024 and Germany is still short of that, at about 1.4 per cent.
Mr Esper said the military moves would cost “single digit” billions of dollars, although taking troops home could result in future savings.
Some smaller units could move within months, and the plan leaves about 24,000 troops in Germany.
Twenty-two Republicans on the House armed services committee sent a letter to Mr Trump saying a reduced US commitment to Europe’s defence would encourage Russian aggression.
Senator Mitt Romney on Wednesday called the plan a “grave error", and said it was a disservice to Germany that would do lasting harm to American interests.
Nato Secretary General Jens Stoltenberg, meanwhile, welcomed the US move and said Washington had been consulting allies on the matter recently.
Mr Trump’s announcement on the withdrawal in June blindsided the alliance.
Germany’s defence and foreign ministries said that US “planning is not yet complete and may be subject to further adjustments".
Chancellor Angela Merkel defended Germany’s defence spending, saying it had increased and that Berlin would continue to work towards the 2 per cent benchmark.
Under the plan, the US Air Force’s 52nd Civil Engineering Squadron could be the first to move, going from Germany to Italy, said Gen Tod Wolters, head of US European Command.
An F-16 squadron and several other small units were also to go to Italy.
After the announcement, a politician with Germany’s opposition Left Party, which has its roots in the former East German communist party and has call for US troops to withdraw, said the plan was “far from sufficient".
“Wars are waged all over the world through the US bases in Germany, including drone attacks that violate international law,” said Tobias Pflueger, the Left Party's deputy leader.
The Pentagon announcement is tied to the plan to increase US troops in Poland, a shift long desired by Warsaw and Polish President Andrzej Duda.
At the White House last month with Mr Duda, Mr Trump said some of the troops from Germany would go to Poland.
On Wednesday, officials suggested that Poland may get some more rotational forces that would go in and out of Europe.
Lithuania has also pressed for a US troop presence, but was not mentioned.
Under an agreement announced last year, the US said it was sending about 1,000 more troops to Poland.
Officials said the troop moves would require building at bases in the US, specifically to accommodate the Army’s 2nd Cavalry Regiment, which will move from Vilseck, Germany, to an undetermined location in America.
Germany is a centre for US operations in the Middle East and Africa.
The decision to keep nearly half of the forces in Europe is a move by the Pentagon to put allies at ease by avoiding the complete withdrawal of 12,000 troops out of the region.
And spreading forces into the east signals to Russia that the US is not reducing its commitment to the region and remained ready to protect Eastern Europe from Moscow’s aggression.
Senator Jim Inhofe, the Republican chairman of the Senate armed services committee, has supported the plan while acknowledging it would take “months to plan and years to execute”.
Mr Trump announced last month that he wanted to cut the number of active duty US troops in Germany from about 36,000 to fewer than 25,000.
Moving the forces out had long been rumoured and was in line with Pentagon efforts to put more troops in the Indo-Pacific region.
Overall, the US has about 47,000 troops and civilian personnel in Germany.
Most of the 36,000 on active duty are in a handful of larger army and air force bases, including Ramstein Air Base, a regional centre in southwestern Germany.
There also are 2,600 National Guard and reserve troops and almost 12,000 civilians there.