You take a regular straight stitch machine, sew along the edge with a short stitch, go back over the stitching again, and then cut. Elizabeth Zimmerman used this method of "steeking" to make the armholes on Nordic style sweaters and to cut the center open on cardigans because she much preferred to knit the whole body in the round.

Annie

Annie gave pretty much the same advice I would have. I have never steeked (too afraid), but you could check out some of EZ's books to get some ideas.

I've steeked and believe me, it's scary....EZ says, after doing it go to a dark room and lie down, to recuperate! It does work, though. I'd hate to see her ruin the back, and all the yarn in that piece, when she could unknit it and reuse the yarn for a better fitting piece.
Is the yarn wool? I'm a big one for blocking to take care of problems...generally it means tugging to the right size, pinning down and then spraying with water and letting dry. 4 inches big would be 2 inches each side. You could try a swatch, measure it, dampen it and see if blocking could reduce the size...and if so, how much.

Just reknit it. Rip it out and make the right size back. I have never steeked, but I read where those who have been brave enough to do it describe it as fun, but they were reacting to following a steek direction to add a pocket or sleeves or make a cardigan. This is just repairing a poor fit, so maybe even the fun won't be there.

If you are going to knit or crochet, you have to face the reality of ripping out mistakes to make an item right and something you will be proud of having made. It builds character!!!!