The US is to end its efforts to train new Syrian rebel forces and says it will shift to providing equipment and weapons to existing forces.
Its $USD500m programme was heavily criticised after it emerged that US-trained rebels had handed vehicles and ammunition over to extremists.
It emerged last month that only four or five of the fighters were in Syria.
The programme had aimed to train and equip 5,400 fighters this year and a further 15,000 in 2016.
A senior administration official said the programme was being put on "pause".
The programme had suffered from "significant challenges", the official said, adding: "We had a very high bar in terms of recruiting".
The US will no longer vet every individual recruit but just the leaders of the groups they decide to work with, who will face "very vigorous vetting".
Of the initial two groups sent into the country under the previous programme, the first was rounded up by Jabhat al-Nusra, an offshoot of al-Qaeda, in July. The second handed much of its equipment over to the same group in September, reportedly in exchange for safe passage.
Quoting an anonymous US Department of Defense source, the New York Times reported that the US would no longer recruit Syrian rebels to go through its training programmes in Jordan, Qatar, Saudi Arabia or the United Arab Emirates.
Instead, it would establish a smaller training centre in Turkey, where "enablers" - mostly leaders of opposition groups - would be taught operational manoeuvres like how to call in airstrikes, the newspaper said.
Speaking in a joint news conference with UK Defence Secretary Michael Fallon, Mr Carter admitted that he "wasn't satisfied with the early efforts" of the training.
The US was now looking at "different" ways to "enable capable, motivated forces on the ground to retake territory from ISIL and reclaim Syrian territory from extremism", he added, using another acronym for IS.
Russian missile 'malfunction'
Mr Carter also said there were indications that four Russian cruise missiles that crashed in Iran before reaching their targets in Syria had malfunctioned.
The defence secretary is the first US official to comment publicly on the reports that the Russian missiles crashed. Russia has denied the claim, saying all 26 missiles hit their targets.
The missiles were fired from the Caspian Sea some 1,500km (930 miles) away, their route taking them over Iran and Iraq. They were launched in support of a major ground offensive by Syrian government troops in western Syria.
Mr Carter accused Russia of running "fundamentally flawed" operations in Syria which would "inflame the civil war and therefore extremism".
Moscow says it has been hitting IS positions and denies reports that Russian strikes have mainly targeted other opponents of Syrian President Bashar al-Assad.