America will need to scale back the size of its armed forces in the face of deep budget cuts and rely less on military power alone, Pentagon chief Chuck Hagel said Tuesday.

Fiscal pressures coupled with new strategic realities will require a reorganization of the force that enjoyed massive budgets in the years after the attacks September 11, 2001, the US defense secretary said.

"Coming out of more than a decade of war and budget growth, there is a clear opportunity and need to reform and reshape our entire defense enterprise," Hagel said in a speech at the Center for International and Strategic Studies (CSIS) think tank.

Budget reductions mandated by Congress will require a smaller but well-armed force that will have to sacrifice a degree of combat readiness, he said.

"In some cases we will make a shift, for example, by prioritizing a smaller, modern and capable military over a larger force with older equipment," Hagel said.

His comments coincide with a review of military priorities now underway, with senior officials and commanders weighing a potential downsizing of the Army from more than 500,000 to 420,000 troops.

To preserve the military's edge, the Pentagon also would have to tackle ballooning personnel costs that threaten to swallow up funds for new weapons, he said.

Without scaling back pay and benefits, which make up about half the defense budget, "we risk becoming an unbalanced force," Hagel said.

"One that is well-compensated, but poorly trained and equipped, with limited readiness and capability."

As the country moves away from a "permanent" state of war, military strength would remain important but play a supporting role to diplomacy, he said.

The United States "will need to place more of an emphasis on our civilian instruments of power," Hagel said.

The military will "remain an essential tool of American power and foreign policy, but one that must be used wisely, precisely, and judiciously," said the former Republican senator, who was an outspoken critic of the Iraq war.

While Washington needed to guard against an arrogant stance in its foreign policy, Hagel also expressed concern that Americans are growing "skeptical about our country's foreign engagements and responsibilities."

He said that "only looking inward is just as deadly a trap as hubris, and we must avoid both in pursuing a successful foreign policy in the 21st century."

Military spending cuts 'too abrupt'

Hagel's speech came as the Pentagon prepares for another round of automatic budget cuts adopted by Congress that are due to take effect in the new year.

Under the budget reductions, known as sequestration, the Pentagon faces nearly $500 billion in cuts over ten years, in addition to about $487 billion worth of cuts to planned spending that were already adopted.

"These cuts are too fast, too much, too abrupt, and too irresponsible," he said.

But the Pentagon had to plan assuming no end to the political impasse that produced the automatic cuts, and that combat readiness would be affected, he added.

"We may have to accept the reality that not every unit will be at maximum readiness, and some kind of a tiered readiness system is perhaps inevitable," he warned.

"This carries the risk that the president would have fewer options to fulfill our national security objectives."

While the Pentagon would have to find savings across the defense budget, Hagel said priorities for investment would focus on special operations forces, unmanned surveillance aircraft, space and cyber weaponry.

Hagel said "it will be important to maintain our decisive technological edge."

The vision he outlined for the military -- a smaller, hi-tech force -- echoed the approach favored by a previous defense secretary, Donald Rumsfeld, who Hagel clashed with over the Iraq war during George W. Bush's administration.