The merger will create the world's eighth biggest bank

The sale of up to 79 million shares should raise more than �1bn.

Santander said it would end cross-directorships and commercial co-operation with RBS, if its �8bn offer for Abbey succeeds.

HBOS - considering a counter-bid for Abbey - had complained to regulators about Santander's RBS holding.

Long relationship

HBOS said last month that it was "inconceivable" that one of the four biggest UK banks should sit on the board of a company that may acquire another of the country's largest lenders.

The Spanish bank said it will sell up to 2.51% of RBS's stock to institutional investors, leaving it with not less than 2.5% of the Scottish bank's shares.

Each bank's chairman, Emilio Botin of Santander and Sir George Mathewson of RBS, sits on the other's board.

"Our alliance has historically always included cross-directorships but both we and RBS have recognised that these would be inappropriate in the event that Banco Santander's agreed offer for Abbey is successfully concluded," Santander Mr Emilio Botin said in a statement.

RBS shares were down 2.5% at 0845 (0745 GMT).

Santander's partnership with the Scottish bank dates back to 1988.

The banks have supported each other on acquisitions and Santander helped to finance RBS's �21bn takeover of Nat West in 2000.