The taxpayer is no longer Lloyds Banking Group's largest shareholder after the Government reduced its stake to less than 6%.
UK Financial Investments, which manages the Government's stake in Lloyds, reduced its holding in the lender by one percentage point to 5.95%, taking the banking group a step closer to being returned to private hands.
The Government said back in October it hoped to offload its remaining shares in Lloyds to institutional investors within a year as Chancellor Philip Hammond ditched plans for a share sale to the public.
Mr Hammond said the latest share reduction was "further evidence" to show the Government was "on track" to recover 2008's £20.3 billion bailout investment.
"Returning Lloyds to the private sector and recovering all of the cash the taxpayer injected into the bank during the financial crisis is a priority for the Government," he added.
All proceeds from the sale will be used to reduce the national debt.
Lloyds boss Antonio Horta-Osorio hailed the share reduction as a "key milestone".