(Updates with Pace denial)

WASHINGTON, Aug 24 (Reuters) - The chairman of the U.S. military's Joint Chiefs of Staff on Friday denied a newspaper report that he will urge President George W. Bush to cut U.S. troop levels in Iraq next year.

"The story is wrong," Marine Gen. Peter Pace said through a spokesman. "It is speculative. I have not made nor decided on any recommendations yet."

The Los Angeles Times, citing military and administration officials, said on Friday that Pace was expected to contend that keeping significantly more than 100,000 troops in Iraq through next year would severely strain the military and compromise its ability to respond to other threats.

Pace's term as chairman expires at the end of September.

The top U.S. commander in Iraq, Army Gen. David Petraeus, is to give his much-awaited recommendation next month on how to proceed with military operations in Iraq in a report expected to spark a firestorm of debate on the unpopular war.

The administration has been fending off calls to start withdrawing U.S. troops from Iraq and has cited gains from this year's increase of about 30,000 U.S. forces that has brought troop levels there to about 160,000.

The Times said Pace would say it was strategically important to reduce U.S. deployments in Iraq. It said Pace would likely make that recommendation privately instead of in a formal report.

A senior administration official told the Times that the Joint Chiefs in recent weeks had voiced concerns that the Iraq war had reduced the military's ability to respond to other threats, such as Iran, the newspaper said.

While the focus has been on Petraeus' upcoming recommendation, the Joint Chiefs' responsibility of ensuring the military's long-term well-being means Pace "by law, has a big role in that and he will provide his advice to the president," the newspaper quoted a senior military official as saying.

But the newspaper said given the pressure to defer to Petraeus' report, the Joint Chiefs could weaken their view to Bush.

Bush did not nominate Pace for a second term as chairman and he is to leave the position at the end of September.

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