The Government has lost a vote on an amendment to a Labour Party motion calling for the sale of 25% of the State’s stake in AIB to be postponed until the European Union fiscal rules are relaxed.

However, the Department of Finance has said the vote is not legally binding and intends to continue with its planned timetable for the sale of shares in the lender.

In a statement, the department said: "Private Members Motions are not legally binding on the Government and the Government’s position was set out by the Minister in the Dáil debate on these motions last week.

"The Government position remains unchanged. The Programme for a Partnership Government clearly allows the Minister to sell up to 25% of Allied Irish Banks up to the end of 2018.

"The Minister has consistently stated that any sale of Allied Irish Banks will be based on advice from his officials and advisers based on market conditions and maximising value for the taxpayer."  

The State owns more than 99% of AIB.

Labour's motion called for a sell-off to be postponed until the money made can be invested on improving the country's infrastructure rather than be used to pay debt.

The Government's amendment to the Labour motion was defeated by 90 votes to 47.

Welcoming the motion's passage, Labour leader Brendan Howlin said: "The planned use of the proceeds from the sale of AIB to pay down debt would reduce our debt levels by little more than 1% of GDP - hardly a meaningful difference to make.

"Labour's motion rejected that idea, and instead said that the sale of AIB shares must be postponed until the proceeds can be invested in building homes and hospitals, and schools and public transport."

Meanwhile, Sinn Féin Finance spokesperson Pearse Doherty described the passing of the motion as ‘bizarre’ and that it "seems to be a result of distraction about the leadership race meaning Fine Gael forgot to call a vote.

"It is also bizarre that the Labour motion seeks changes to the very rules they championed.

"The important thing is that the motion passed and that now we have space to start a real debate about the future of AIB," he added.

The issue of the sale of AIB shares was raised earlier in the Dáil by Social Democrat TD Catherine Murphy, who queried whether it was in the best interest of the country to sell the shares.

She said AIB was now producing a dividend and that could be spent on capital projects.

In response, Minister for Finance Michael Noonan said the Government was bound by Eurostat rules.

He said the sale of the shares was viewed as a financial transaction, changing one asset for another.

The money, he insisted, cannot be used as general government income.