"Their activity is now limited to certain places north of Baghdad," he said at a news conference. "We're working on pursuing those groups, that is the coming fight."
Petraeus said that despite a number of successes against al-Qaeda in recent months, destroying the group was still a top concern for the US military and Iraq's biggest security challenge next year.
But he warned that al-Qaeda remained active and lethal, despite being forced to flee north into Diyala and Ninevah provinces from their former strongholds in Anbar and Baghdad.
"It is the most significant enemy Iraq faces because it carries out the most horrific attacks, that causes the greatest damage to infrastructure and seems most intent on re-igniting ethno-sectarian violence," Petraeus said.
He likened al-Qaeda to a boxer that has been knocked down a couple of times but keeps "coming up off the canvas, has a lethal right hand, can land very tough blows and has demonstrated the ability to do that periodically in recent months."
He blamed al-Qaeda for three deadly bombings that killed 49 people in the past week, including 14 who died on Friday when a car bomb blew up in central Baghdad.
In Ninevah's capital of Mosul, which remains an al-Qaeda stronghold, police reported that gunmen killed three members of a patrol in the eastern part of the city.
Another group of gunmen attacked the head of the police department's press office, killing one of his bodyguards and wounding him.
In nearby Tal Afar, on the road to Syria, police said five insurgents were killed in gun battles with Iraqi and US forces.
According to Petraeus, al-Qaeda has been significantly degraded but is far from being wiped out. He said the group was having serious problems and had resorted to racketeering and other forms of organized crime to fund its activities.
Concerted actions by a number of Arab nations had helped reduce the inflow of foreign funds and fighters. And he said a crackdown by neighboring Syria had reduced the flow of insurgents through that country by 50 percent.
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