* UK will not sell any more shares for 90 days
* Sale reduces size of govt stake to 32.7 percent
* Sale will be at narrow discount to market price - sources
* Sale will be above average buy-in price - sources
Britain has launched the sale of its shares in part-nationalised Lloyds Banking Group, a milestone in the country's recovery from the 2008 financial crisis.
UK Financial Investments (UKFI), which manages Britain's stake in Lloyds and Royal Bank of Scotland, said it would sell 6 percent of shares in Lloyds, worth 3.3 billion pounds ($5.3 billion) based on Monday's closing share price.
Britain's Conservative-led coalition government considers the sale as a key step in its recovery from the 2008 financial crisis, during which taxpayers pumped a combined 66 billion pounds into Lloyds and RBS.
"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met," a Treasury spokesman said.
Britain pumped 20.5 billion pounds into Lloyds during the crisis, leaving taxpayers holding a 38.7 percent stake. The sale will reduce its stake to 32.7 percent.
Sources with direct knowledge of the sale process said it is likely to be completed before the market opens on Tuesday and at a narrow discount to the current share price.
It will be open to all institutional investors but the government has decided against using cornerstone investors despite interest from sovereign wealth funds and private equity investors in taking such a role.
Although the size of the stake being sold is lower than some analysts had expected, it is still comfortably above that of the Royal Mail, which is expected to raise between 2 and 3 billion pounds in its upcoming privatisation.
"It's a great signal it has been kicked off, the wheels have started to turn," said Chirantan Barua, analyst at Bernstein.
Shares in Lloyds closed on Monday at 77 pence. The average price at which the government bought the shares was 73.6 pence and sources have said the sale will be above that.
Labour finance spokesman Chris Leslie said the sale should be used to repay national debt.
"It's vital that taxpayers get their money back and this must be the prime consideration in the sale of the government's stakes in the banks," he said.
The sale will be a vindication for Lloyds' Chief Executive Antonio Horta-Osorio, who has restored the bank to profitability since his appointment in 2011, simplifying the business to focus on lending to UK households and businesses.
Horta-Osorio said: "I believe this reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy," Horta-Osorio said."
The turnaround had prompted hopes the bank will start paying dividends again next year, having seen its shares double in value over the past year.
"The focus on selling non-core businesses as well as cost reduction has improved the bank's capital position to a point that it could return to distributing dividends to shareholders in the medium term," said Paras Anand, head of European Equities at Fidelity Worldwide Investments.
UKFI, which manages the government's stakes in Lloyds and Royal Bank of Scotland, said it had agreed not to sell any more shares in the bank for a period of 90 days. The government is expected to sell the shares in several tranches.
Bankers say later sales are likely to include an offering to private retail investors.
JPMorgan, Bank of America Merrill Lynch, and UBS are handling the sale.