The PSNI reserve is to be halved in number, Chief Constable Hugh Orde decided today.
He resisted a recommendation to abolish the force's 1,490 full-time reservists and instead opted to retain 680 officers.
Mr Orde told the policing board of his decision today.
He was under pressure from republicans and nationalists to disband the force completely as recommended by the Patten report on policing in Northern Ireland published in 1999.
But unionists have waged a campaign calling for the force's retention. Following a dissident republican attack on a police station in Derry yesterday, DUP leader Rev Ian Paisley telephoned British Prime Minister Tony Blair to tell him it would be a mistake to disband the mainly Protestant force.
Mr Orde's decision comes after the Police Federation announced it has agreed a severance deal for members.
Officers will be able to quit the force with redundancy packages of up to £100,000 sterling. The total pay-off is expected to cost the British government up to £100 million.
Following the announcement the police federation passed a vote of no confidence in Mr Orde. It accused the Chief Constable of rejecting the professional advice
of its members and the Superintendents Association.
"Our conclusion has to be that his decision is politically-informed. Central Committee has therefore passed a vote of `no confidence' in the Chief Constable.
His ability to exercise independence of judgment has been compromised."
Retaining 800 would have been the right decision, it said.
Sinn Féin policing spokesperson Mr Gerry Kelly also criticised the decision saying it would create considerable ander in the nationalist community.
He said the Reserve was "established in 1970 as a unionist militia ... and is associated with some of the worst excesses of a failed policing agenda."
"For progress to be made towards a new beginning it has to be removed from the policing equation," he said.
He also hit out at the severance package for the force saying it appeared to failed policing was "being rewarded with massive amounts of public money."
Additional reporting PA