The announcement means tens of thousands of armed Sunni Arabs, some believed to have fought as insurgents until this year, will soon be working for the government in Baghdad.
The Iraqi government had announced earlier this week its plans to take over the contracts of 12,000 of the patrol members, issuing them uniforms and paying them.
Baghdad security spokesman Brigadier-General Qassim Moussawi told a news conference the government would expand that number to 45,000 by mid-2008, accounting for most of the programme.
He confirmed to Reuters that all 45,000 would be drawn from people now on the payroll of U.S. forces.
The U.S. military pays about 50,000 members of the patrols, whom it refers to as 'concerned local citizens', about $10 a day to man checkpoints and guard neighbourhoods.
Another 10,000 work as unpaid volunteers, while about 17,000 more have signed up to join the programme.
Most of the patrol members are drawn from the Sunni Arab community, often in what have been some of the most violent areas of Iraq, where local sheikhs have abandoned the insurgency and agreed to cooperate with U.S. forces against militants.
The Shi'ite-led government has been seen as sceptical of the neighbourhood patrol programme, fearing it could turn into a dangerous armed militia of its former Sunni Arab foes.
But this week's announcements signal a change in strategy from the government that U.S. forces say they hope will eventually see many of the patrol members integrated into regular police units as spaces open up in police academies.
Sunni Arabs complain they are under-represented in the police and army, and recruiting regular police officers from the patrols could help address that concern.
(Reporting by Peter Graff, Aseel Kami and Aws Qusay; Writing by Peter Graff; Editing by Catherine Evans)