Major General Peter Gersten told Pentagon reporters that when he arrived in Baghdad about a year ago, between 1,500 and 2,000 foreign fighters were joining the Islamic State group's ranks each month.
"Now we have been fighting this enemy for a year, our estimates are down to 200 (per month) and we are actually seeing now an increase in the desertion rates of these fighters," Gersten said.
The general attributed the drop in part to the US-led coalition's continued attacks on the IS group's cash-storage facilities.
"We are seeing a fracturing in their morale, we are seeing their inability to pay, we are seeing the inability to fight," Gersten claimed.
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"We are watching them try to leave Daesh. In every single way, their morale is being broken," he added, using an Arabic abbreviation for the IS group.
Gersten declined to provide an estimate on the overall size of the IS force, but this month Deputy Secretary of State Antony Blinken claimed the number was at its lowest ebb since the United States began monitoring the group in 2104.
In addition to hitting their cash stores, US planes and drones have targeted IS oil trucks and wells in a bid to further diminish their financial resources.
The United States has since August 2014 led a coalition attacking the IS group in Iraq and Syria.