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South Korea's original plans to dispatch the contingent to the Kirkuk region, also in northern Iraq, were abandoned last month because of the worsening security situation there.
The two proposed locations, Sulaimaniyah and Irbil, are in Kurdish autonomous regions near the Iranian border, the ministry said.
South Korea's contingent, which will be the third-largest in Iraq after the United States and Britain, is made up mainly of non-combatants whose mission is limited to relief and rehabilitation work.
"The US side faxed a letter to us Thursday requesting that South Korea dispatch troops to Iraq's Sulaimaniyah or Irbil regions, which are neighboring Iran," spokesman Nam Dai-Yeon said during a briefing.
"South Korea's National Security Council deliberated the US request and decided to send troops to one of the two places," Nam said.
A decision on which area they will be sent to will be made after a South Korean military survey team visits Iraq in mid-April, he said.
The Kirkuk plan was dropped two weeks ago because South Korea authorities feared their force could be drawn into combat situations after the US military asked to station US troops there under South Korean command.
The oil-rich city is a hotbed of ethnic strife in northern Iraq and increasingly a rallying point for anti-US resistance.
The new troop deployment, originally expected to begin in April, is expected to be delayed until June, officials said.
Faced with the widespread unpopularity of the Iraq war here, South Korea has insisted its troops, mostly non-combatants, focus on humanitarian efforts.
Some 400 South Korean medics and engineers are already serving in Iraq.
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