The Government is cutting the rate of interest on its £3.26 billion loan to Ireland, George Osborne has announced.
The Chancellor insisted easing the pressure on the struggling country is in the UK's "national interest".
The move came after eurozone states agreed a new bailout package designed to shore up the positions of debt-laden members such as Greece and Ireland.
Mr Osborne said he had told his Dublin counterpart Michael Noonan of the decision to reduce the bilateral loan interest on Friday morning.
"I've been arguing for some time that the interest rates charged for eurozone loans were too high. I'm pleased therefore they have now reduced those rates," he said.
"That enables Britain to cut its rate on its loan to Ireland, while ensuring all of the benefit goes to Ireland and not to higher interest rates paid to euro area governments. We will still be more than covering the cost of our borrowing.
"We stayed out of the Greek bailout as promised. But, for Britain, Ireland is a special case. Our loan will help them and is in our national interest."