Minister for Finance Michael Noonan has told the Dail that a €3.06bn cash payment to IBRC, formerly known as Anglo Irish Bank, due on 31 March, will be deferred.
The payment will now be financed through the issue of a long-term Government bond.
Mr Noonan said the move would allow wider discussions between the Government and the Troika on the structure of the promissory notes being used to fund IBRC.
Mr Noonan said it would have only a €90m impact on the general Government deficit this year, but it would help Ireland's debt sustainability.
He said the money from the EU/IMF deal earmarked for the payment could now be used to give Ireland greater flexibility on its plan to return to the bond markets.
Mr Noonan said the long-term bond would be financed for one year on commercial terms by Bank of Ireland, which in turn would deal with the ECB.
The move has been approved by the board of the bank but is subject to the agreement of the shareholders.
As an interim measure, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland. NAMA will facilitate this from its own funds.
"The net effect of this transaction is to reduce the economic cost for the State as a whole of refinancing this payment," Mr Noonan said.
"Given these benefits the Government is going to proceed with the proposed settlement approach."
The United Left Alliance has dismissed Minister Noonan's announcement as "nothing more than accountancy trickery."
Richard Boyd Barrett said paying the note with a Government bond did nothing to relieve the debt burden or what he called "brutal austerity".
He claimed it was just more spin and PR by the Government to try to fool people into voting for the Fiscal Treaty.
In a statement the ECB said it was "very important that the Irish state...honour[s]" the full payment of the €3.06bn promissory notes.
The ECB added that it expects that future promissory notes will be paid according to the schedule to which the Government had committed itself.
