Northern Rock is to be sold to Virgin Money for £747 million, the Treasury has announced.
The bank will be rebranded Virgin Money, and will see Sir Richard Branson's bank entering the high street for the first time.
The government says the sale is "in the best interest of the taxpayer" and will secure a long-term future for the company. It will also help to increase competition between the high street banks.
Northern Rock was nationalised in 2008 after it almost collapsed at the beginning of the financial crisis. It was then split into two, Northern Rock plc, and Northern Rock (Asset Management).
Virgin Money has agreed to buy Northern Rock plc.
Major new competition
The new group will have more than four million customers and provide savings, mortgages, current accounts, credit cards and insurance and investment products.
"We plan to create a major new competitor in UK retail banking as we bring together Northern Rock and Virgin Money at the beginning of 2012," says Jayne-Anne Gadhia, chief executive officer at Virgin Money.
"The two businesses complement each other well and together they will create a strong bank with over four million customers," she adds.
There will be no redundancies at the bank, and all the terms and conditions will stay the same for existing customers.
Chancellor George Osborne says: "The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks. It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the North East."
The government will initially receive £747 million for the sale. It is also expected it will receive a further £50 million within six months of the completion. If the bank is sold within the next five years there is a potential for a further £150 million for the Treasury and £50-80 million if the bank is listed on the stockmarket.
The sale should be finished by the end of the year. There are no plans to sell Northern Rock (Asset Management).