Defence Minister Brendan Nelson said an extra 38 soldiers would be deployed to join the "operational overwatch battlegroup" based in Tallil in Al-Muthanna province, where they are supporting and helping train Iraqi troops.
Four armoured vehicles will also be deployed in Iraq.
But Mr Nelson rejected a suggestion at a news conference that the government was bolstering the force in recognition that Iraq was moving closer to civil war.
"That's not the case at all," he said. "What it does is it reflects and recognises the changed nature of the operation, which originally was our 450 soldiers protecting Japanese engineers in Al Muthanna province.
"We've now moved to a new role, based in Tallil, providing operational overwatch activities to support Iraqi security forces in Al Muthanna."
Australia contributed 2,000 troops to the US-led invasion of Iraq which ousted Saddam Hussein in early 2003 and still has a total of about 900 troops in the country.
Their main focus was in the southern city of Samawa, where they helped protect Japanese military engineers until the Japanese were ordered to withdraw in June.
Mr Nelson said Australian soldiers were conducting patrols, preparing to begin border patrols and providing constant support and communication with Iraqi authorities in Al Muthanna province.
"So, in other words, the task has changed," Mr Nelson said.
The increase in troops was "based on our first month of experience providing overwatch experience in Al Muthanna and it's a very strong recommendation that's come to me from the chief of defence," he said.