Bankia is one of four state-rescued Spanish banks first in line for receiving up to 100 billion euros in aid from Europe. Their recapitalisation plans must receive European approval by November.

By selling off loans, banks cut down the amount of capital they have to hold to support the loans. This is the second sale of a bad loan portfolio Bankia has made in three months after it closed a 800 million euro deal in July.

"This sale will have a positive effect on the bank's results because the loans were totally written off in terms of capital," the bank said in a statement.

Spanish banks have been forced to write off hundreds of billions of euros of bad real estate investments under government demands in an attempt to free up their balance sheets and get credit flowing to families and businesses.

The Bankia portfolio consisted of bad loans linked to car purchases. Spaniards are defaulting on loans as they battle high unemployment, public spending cuts and the worst economic slowdown in half a century.

Sources told Reuters last week Bankia was preparing to sell 500 million euros in loans.