The army will be reduced to its smallest size since the Boer war under plans to be announced by Liam Fox, the defence secretary, on Monday.

It will shrink from more than 100,000 regulars to about 84,000, as reforms will make reserves better trained and better paid, officials said. The shake-up will take place after British troops give up their combat role in Afghanistan in 2014.

The Treasury has agreed to bolster the defence budget, with £1.5bn earmarked to help pay for beefed-up reserves and more funding for military equipment.

The money will pay for 14 delayed Chinook helicopters due to come into service after 2014, three new US Rivet spy planes, and upgrades to the army's Warrior armoured vehicles.

A review has proposed that the Territorial Army should retain its current strength of 36,000, but about 5,000 reservists should be trained for frontline operations. Reservists would also contribute more to "homeland security" work, dealing with the aftermath of terrorist attacks and civil emergencies.

The review was conducted by General Sir Nicholas Houghton, vice-chief of the defence staff, Julian Brazier, Conservative MP and former TA officer, and Lt Gen Graeme Lamb, former head of the UK's special forces. It is understood their proposals have been accepted by Fox.

The defence secretary will also announce specialist roles for the reserves, including cyber security, intelligence, foreign language skills and medical services.

According to officials, the foreword to the reserves review says: "Our commission has concluded that the UK's reserve forces are in need of significant revitalisation and reorientation. Although continuing to do a remarkable job in many areas … the wider picture is one of relative neglect and decline". Britain deploys proportionately fewer reservists than other Nato countries – below 20%, compared with more than 50% for the US, 44% in Canada, and 37% in Australia.

Fox is expected to announce that RAF Leuchars is to close, to house soldiers leaving Germany between now and 2020. The RAF will left with one base in Scotland — RAF Lossiemouth. The decision to transfer the two RAF Typhoon squadrons from Leuchars to Lossiemouth is understood to have been made only last Friday, though there has been speculation for months.

The military already faces other major plans to change its structure.

Under reforms to the Ministry of Defence published last month, senior members of the military will lose their jobs if they let costs get out of control and fail to manage budgets. The heads of the army, Royal Navy and RAF will be held accountable as never before, and responsible for cutting the number of officers.

All three services have become overloaded with top brass, according to the report by Lord Levene, chairman of Lloyd's of London. His proposals have been accepted by the coalition government.

Levene noted that inter-service rivalry had added to the problems and he recommended the creation of a new joint forces command, headed by a high-ranked commander, as one way of breaking down the barriers between them. Fox last month sought to calm fears within the army over possible further cuts. Though it is committed to making tthousands of redundancies, there has been speculation that the army would be in line for more in order to prick a ballooning defence budget. "We have no plans to reduce the size of the army in this parliament," Fox told MPs.