WASHINGTON (CNN) -- The Pentagon has agreed to cut from its budget $171 million to build police stations in Iraq after demands from Congress that the Iraqi government spend its recent oil windfall on reconstruction projects.

Iraqi employees attend the opening ceremony of a new oil refinery plant in Najaf, Iraq, on March 15.

In a letter to the Senate Armed Services Committee released Tuesday, Defense Secretary Robert Gates wrote that he had heard senators' concerns "loud and clear" during hearings earlier this month. As a result, he wrote, "We will seek full funding from the government of Iraq for this purpose."

The amount is a fraction of the roughly $47 billion Congress has approved to rebuild Iraq since the U.S.-led invasion in 2003. But Democrats and Republicans have complained that American taxpayers are continuing to pay for reconstruction work in Iraq when crude oil prices, now nearing $120 a barrel, have left the country's U.S.-backed government reaping a budget surplus in the tens of billions of dollars.

"It's not enough, but it's an important step," said Sen. Carl Levin, D-Michigan, the Armed Services Committee chairman. Levin said Gates acknowledged that "there's gonna have to be changes made," and called the Pentagon chief's actions an "important first step."

"It's a significant message to the Iraqis that there is a lot of pressure from the American people, from the Congress, to stop spending a lot of money in Iraq for things the Iraqis can pay," said Levin. He raised the issue earlier this month during hearings on the now-widely unpopular war.

Sen. Mel Martinez of Florida, a Republican member of the committee, said Iraqis should pay as much of the cost of the war "as they possibly can afford."

"I think it's time to take the training wheels off when it comes to money," he said.

The money Gates is redirecting came from the Defense Department's budget for 2007. He told the committee the remaining $439 million in reconstruction project funds should continue, arguing those projects "present a critical opportunity" to make improvements in war-torn neighborhoods and develop the capacity of Iraqi security forces.

"These initiatives will enhance Iraqi Army and Air Force capabilities that will, in turn, further enable our own transition of mission," he wrote. E-mail to a friend

CNN's Lisa Desjardins and Ted Barrett contributed to this report.

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