He told a news conference former soldiers would now be paid a "monthly interim stipend" slightly lower than their previous salaries until a new Iraqi government could decide their future.
Anger among unpaid soldiers boiled into violence last week when US troops shot dead two protesters in a crowd that was stoning a military convoy as it drove into the administration's headquarters in Saddam's former palace compound in Baghdad.
Apart from facing protests by laid-off state workers, US troops have frequently come under fire in and around Baghdad.
A soldier was killed and one was wounded in a grenade attack on a military convoy south of Baghdad on Sunday, bringing to 19 the number killed by enemy fire in Iraq since Bush declared major combat over on May 1.
Oil prices fell on Monday as Iraq exported its first oil since the war. One million barrels of crude oil were loaded onto a tanker at the Turkish port of Ceyhan on Sunday.
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