Virgin Money has agreed to buy Northern Rock plc in a deal worth an initial £747 million.
The bank has been up for sale since June this year, with Virgin's offer considered to be the best of all the bids and other options.
Virgin Money has made no secret of its desire to break into the retail banking market in the UK , and recently began building a branch network.
The Government said the deal, which is expected to be rubber-stamped in January – represents a significant step in returning public sector stakes in banks to the private sector.
In a statement, HM Treasury said the deal will lead to a shake-up on the UK 's high streets.
"The combined business of Northern Rock and Virgin Money will establish a new competitor in the UK retail banking sector and, in doing so, will lead to an increase in choice for high-street customers.
"It will help increase diversity in the retail banking sector as Virgin Money seeks to innovate and expand into new market segments."
Northern Rock has been under public ownership since February 2008, and pictures of customers queuing up outside branches to withdraw their savings have become a defining image of the UK 's banking crisis.
The deal has been hailed as a victory for the North East as Virgin Money has pledged to:
"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," said George Osborne, Chancellor of the Exchequer.
"It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the North East."
The sale will not affect current customers of Northern Rock, who will carry on their banking as usual.
They do not need to take any action and can continue to operate their accounts and contact Northern Rock as they do now.
Northern Rock Asset Management – the part of the bank which holds bad loans and toxic debts – will continue to be publically owned.
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