US Defence Secretary Robert Gates has recommended axeing one of the ten major US military commands in a major reallocation of defence spending.
Mr Gates said the Joint Forces Command would close, the use of outside contractors would be cut and the number of generals and admirals reduced.
He has said that he wants to find savings of about $100bn (£63bn) in the military budget in the next five years.
Mr Gates said he wanted to free up spending for frontline requirements.
In a Pentagon news conference, he said the military had grown unwieldy and costly following the terrorist attacks of 11 September 2001.
"I'm not satisfied with the progress made to reduce our over-reliance on contractors," Mr Gates said.
The Joint Forces Command, based in Virginia, employs 5,000 people and trains troops from the different services to work together.
Calling the US military "top-heavy", Mr Gates, who was appointed by George W Bush in 2006, said he would recommend eliminating at least 50 positions for generals and admirals.
And he recommended cutting the number of support contractors by 10%.
"I want to re-emphasise that this agenda is not about cutting the department's budget," he said.
"It is about reforming and reshaping priorities to ensure that, in tough budgetary and economic times, we can focus defence resources where they belong, in America's fighting forces, investment in future capabilities, and most important, on our men and women in uniform."
The US Department of Defense will spend more than $700bn this year, says the BBC's James Reynolds in Washington, more than any other military service in the world.
Mr Gates's previous pledges to reform the budget have encountered stiff resistance from members of the US congress who rely on military spending for jobs in their constituencies.
His latest announcement also brought swift political reaction.
"At the end of the day, Secretary Gates and his team will have to convince members of this committee that these efforts will not weaken our nation's defence," said Buck McKeon, the senior Republican on the House Armed Services Committee.
Virginia Democratic Senator Mark Warner said he could see "no rational basis" for eliminating the Joint Forces Command, based in his state.
"In the business world, you sometimes have to spend money in order to save money," he said.
President Barack Obama praised Mr Gates' announcement as part of efforts to "reform the way the Pentagon does business".
"The funds saved will help us sustain the current force structure and make needed investments in modernisation in a fiscally responsible way," he said in a statement.