The Minister for Finance is to sell 3% of the State's stake in Permanent TSB.
The surprise move is part of a co-ordinated plan with NatWest Group which will also see the British lender sell a similar amount of PTSB stock.
The development, details of which are contained in a statement issued to the markets by NatWest this evening, will see the State’s stake in PTSB fall from 62.4% to 59.4% if it is completed as planned.
While NatWest’s chunk of the bank will drop from 16.7% to 13.6%.
NatWest said the disposal of the shares will be by way of a placing to institutional investors, with the price at which the shares are to be sold to be determined by an accelerated book building process.
"The book will open with immediate effect following this announcement," NatWest said.
"The Placing is expected to comprise approximately 33 million of PTSB's ordinary shares, representing approximately 6% of the issued ordinary capital of PTSB, with the Minister and NatWest both expected to dispose of 3% of issued ordinary capital each."
While the Department of Finance’s recent policy on the State's holding in the Irish banks has been to sell down the stakes as conditions allow, this is the first move by it to sell shares in PTSB.
In a statement, Permanent TSB said it welcomed the announcement which it claimed reflects the strong progress made by the bank in recent years.
The Department of Finance had no comment to make on the news.
During the financial crisis, the State put around €4 billion in taxpayers money into Permanent TSB as part of a wider bailout of the banking system.
Over the last year, NatWest took a near 17% stake in Permanent TSB as part of the wider transaction between the two banks, which saw PTSB acquire assets from the departing Ulster Bank.
Permanent TSB bought around €6.1 billion in mortgages from Ulster Bank, along with parts of its retail, SME and Asset Finance business in the Republic of Ireland.
Market sources suggested it wasn't a great surprise that NatWest had decided to begin selling its stake in PTSB so soon after it had acquired it, as it had never intended to be a long-term holder of the Irish bank's shares.
It is expected that further sales of the shareholding by NatWest will follow this one, as and when market conditions allow.