Britain's state-rescued Lloyds Banking Group on Thursday said it had agreed to sell 632 branches to Co-operative Group that it was ordered to offload by EU competition regulators.

"Today's agreement is an important step in meeting our obligations under the mandated sale of our branches," LBG chief executive Antonio Horta-Osorio said of the sale worth an initial £350 million ($548 million, 446 million euros).

"We believe the Co-operative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street with nearly 10 percent of today's UK branch network," he said in a statement.

LBG said Co-operative would in time pay a further £400 million for the branches based on the performance of the purchaser's combined banking business from completion up to 2027.

The deal was set to complete by the end of November 2013, LBG said.

"In addition to an upfront consideration, we will also get to share in the future financial performance of the combined banking business which will be an effective challenger with a strong customer focus," Horta-Osorio added.