The Iraq Historic Allegations Team (IHAT) would close in the summer and around 20 remaining cases be given to the Royal Navy Police, he said.
It comes after MPs branded the probe an "unmitigated failure".
The IHAT was set up in 2010 to look into allegations of abuse from Iraqi civilians against British troops.
The decision to close the team comes after a public inquiry exposed the behaviour of a human rights lawyer in charge of many of the abuse allegation cases.
Phil Shiner, from the now-defunct law firm Public Interest Lawyers, was struck off for misconduct in February.
As a result, IHAT's caseload would be reduced from 3,000 to 20 cases by the summer, a Ministry of Defence statement said.
"Exposing his [Mr Shiner's] dishonesty means many more claims he made can now be thrown out and the beginning of the end for IHAT," said Sir Michael.
"This will be a relief for our soldiers who have had allegations hanging over them for too long. Now we are taking action to stop such abuse of our legal system from happening again." - BBC
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