Northern Rock has sold a £2.2 billion sterling (€2.9 billion) portfolio of mortgages to US investment bank JP Morgan and said it would use the cash to repay the Bank of England.
Amid growing uncertainty over its future, the bank also said it had transferred funds of its final salary pension scheme from equities into more conservative investments, including government bonds and cash deposits.
Northern Rock, Britain's biggest casualty of the credit crunch, has borrowed about £26 billion from the Bank of England.
The government's attempts to find a rescuer to pay back the loans and revive the business have mostly focused on two consortiums, led by investment groups Virgin and Olivant.
But extended turbulence in credit markets has raised concerns the suitors will struggle to finance a deal and the government could be forced to nationalise the bank.
Northern Rock said the price achieved for its portfolio of home equity release mortgage assets represented a premium of 2.25 per cent, or approximately £50 million, over the balance sheet value of the portfolio.
News of the repayment lifted the bank's shares 3.8 per cent at 88.5p earlier this morning.