LONDON (AFP) - Britain's government has begun selling its majority stake in bailed-out Royal Bank of Scotland (RBS), aiming to reduce state debt and kickstart the lender's full return to the private sector, the Treasury said Tuesday.

The government has sold 5.4 per cent of RBS for £2.1 billion (S$4.5 billion), a statement said.

Royal Bank of Scotland was rescued with £45.5 billion of public money in 2008 at the height of the global financial crisis.

The world's biggest bank bailout handed Britain's government about 80 per cent of the Edinburgh-based lender.

RBS has since reported losses totalling about £50 billion and has axed more than 30,000 jobs, with thousands more reportedly set to follow.

"The government has today begun the process of selling its shares in the Royal Bank of Scotland. It has sold 5.4 per cent of the bank at a price of 330p per share," the Treasury said Tuesday.

"The £2.1 billion raised from the sale will be used to pay down the national debt."

But with the state having bailed out RBS at a cost of 500 pence a share, the taxpayer is taking a sizeable hit on the sale.

RBS shares climbed 0.41 per cent to 339 pence in trading Tuesday on the London Stock Exchange, whose FTSE 100 index of leading shares slipped 0.03 per cent.

RBS shares last traded above 500 pence in 2010, and only broke 400 pence briefly since mid-2011.

Finance minister George Osborne insisted that the move was "an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British businesses".

He said the move would "promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy."

Back in February, Royal Bank of Scotland said it would end investment banking in the Middle East and Africa and significantly reduce its presence in Asia and the United States after a seventh straight annual loss for 2014.

But it recorded a 27 per cent rise in net profits for the second quarter of this year, with the sale of US operations offsetting higher exceptional costs.