The U.S. and Korea narrowed differences significantly in the latest round of defense cost-sharing talks as the U.S. stepped back from demands for an exorbitant five-fold hike in Korea's contribution, sources said Wednesday.

But Washington is still demanding an expanded contribution from Seoul, which already pays more proportionally than any other U.S. ally for keeping 28,500 American troops here.

"The two sides began narrowing their differences and moved toward a smaller increase in defense cost-sharing," a diplomatic source said.

The final agreement is not expected until February, two months past the expiry of the current agreement.

The American negotiators took into account the views of several senior U.S. lawmakers that a $5 billion bill would be excessive. Instead, the two sides are likely to agree on a 10 to 20 percent hike in South Korea's contribution and a hefty sweetener in arms purchases from the U.S., other sources said.

The U.S. Senate earlier this month ratified the 2020 National Defense Authorization Act, requiring American troop levels to remain at present levels. That decision, which was signed by U.S. President Donald Trump, played a major role in Washington lowering its cost-sharing demand. A government official said, "We plan to meet in January to discuss further details."

