The chief executive of RBS has said the Government's sale of shares in the bank reflects the progress it is making.
Ross McEwan said: "I'm pleased the Government has started to sell down its stake.
"It's an important moment and reflects the progress we are making to become a stronger, simpler and fairer bank.
"There is more work to be done but we're determined to build a bank the country can be proud of."
Chancellor George Osborne has hailed the sale of a 5.4% stake in RBS as "an important first step in returning the bank to private ownership."
He said it was right to start selling the stake at a loss to the price paid for the shares in 2008.
"While the easiest thing to do would be to duck the difficult decisions and leave RBS in state hands, the right thing to do for the economy and for taxpayers is to start selling off our stake, he said.
"Now is the time for RBS to rebuild itself as a commercial bank, no longer reliant on the state, but serving the working people of Britain," he added.
The Government has sold a 5.4% stake in Royal Bank of Scotland for £2.1bn, but the taxpayer has made a loss of around £1bn on the sale.
UK Financial Investments, the body that holds the government's RBS stake, said it had sold 630 million shares, representing 5.4% of the bank at 330p a share in a quick-fire sale to institutional investors after the market closed on Monday.
The price was far short of the 502p paid by the Government when it bailed out the bank at the height of the financial crisis.
RBS shares closed at 337.6p on Monday, so the shares were sold at a 2.3% discount.
The move has reduced the Government's stake in the group from 78.3% to around 72.9%.
The Treasury insisted it would dispose of its stake in Royal Bank of Scotland "at the right time and in the interests of the taxpayer" amid reports a pre-election share giveaway was under serious consideration.
Scandal-hit RBS - which is 81% state-owned after a £45 billion bailout in 2008 - could be ready for privatisation this year, but at present prices that would mean a huge public loss.
The Liberal Democrats have championed the idea of a share giveaway and it was reported tonight that Conservative ministers were also now examining the idea of handing it back to taxpayers.
An FSA spokesman said the regulator would "consider the report's findings and recommendations in detail", adding the FSA had put in place "a completely new model of supervision since the financial crisis".
The FSA comes under widespread criticism in the report saying its failures in the saga "amount to a serious indictment" of bosses at both the bank and the regulator.
The committee also hit out at the FSA for needing to be strong-armed into producing a report into RBS, published last December.
The FSA originally decided not to produce a report into the RBS collapse until bowing to Parliamentary pressure.
But the committee found the FSA's report did give a fair picture of events surrounding the bank failure and subsequent bailout.
The City watchdog has been accused of "serious misjudgment" in its failure to step in and block Royal Bank of Scotland's disastrous takeover of Dutch rival ABM Amro.
A report by MPs on the Treasury Select Committee slammed the Financial Services Authority (FSA) for the part it played in the failure of RBS, which saw the taxpayer stump up £45.5 billion to prevent it from collapse.
The committee said the FSA's biggest fault was not intervening to stop the "calamitous" near-£50 billion ABN takeover and is urging the Government to legislate to ensure the regulator is explicitly required to approve major bank acquisitions to prevent a repeat of the fateful deal.
The Royal Bank of Scotland expects to be fined for its role in the Libor rigging scandal, its chief executive has said.
Stephen Hester said the state-backed lender was in the process of being investigated by the Financial Services Authority over its role in attempting to manipulate the benchmark borrowing rate - a scandal that saw a number of executives resign including Barclays boss Bob Diamond.
Mr Hester told The Guardian:"RBS is one of the banks tied-up in Libor.We'll have our day in that particular spotlight as well".
He added: "Even though when all the Libor (fines) are out most of it is going to be around the wrongdoings of a handful of people at a number of banks. Those wrongdoings taint the whole industry beyond the handful of people and that makes it a huge problem."