The deal will help the U.S. lender free up capital to expand other activities in the country, said a source familiar with the sale who declined to be named because some details of the transaction were not public.

Citigroup bought the stake in 2006 for about $610 million, translating into a profit of more than $2 billion on the original investment, the source added. The bank said it agreed to sell its 20 percent stake in CGB to China Life for an undisclosed sum, adding the deal would not be material to its earnings.

China Life will more than double its stake in CGB from 20 percent after the purchase. Other main shareholders in CGB include State Grid Corp of China [STGRD.UL] and CITIC Trust Co Ltd, each also owning a 20 percent stake.

China's biggest insurer said in a securities filing that besides buying Citigroup's stake it is also buying shares in CGB owned by IBM Credit, a unit of International Business Machines Corp, lifting its holding in CGB to 43.7 percent. China Life agreed to pay about $554 million for the IBM Credit stake.

The sale comes after two failed attempts for CGB to go public the past years, which would have freed up investors including Citigroup to offload their shares in the stock market.

The Chinese bank had mandated banks to arrange a dual listing in Hong Kong and Shanghai in 2011, before giving up on those plans and later trying for a listing in Hong Kong in 2014 as equity markets wobbled.

With new Basel III rules making it disadvantageous for banks to hold minority stakes in other lenders, the sale would free up capital for Citigroup to expand other business in China, the source said.

The bank has an investment banking joint venture with local brokerage Orient Securities Co and is among the few international firms in China to offer sole branded credit cards.

"This transaction is consistent with the simplification of Citi and allows us to focus our resources in China on growing our core franchise further," Citigroup's Asia Pacific Chief Executive Francisco Aristeguieta said in a statement.

The deal also follows moves by Citigroup earlier in February to exit retail banking in Brazil, Argentina and Colombia as part of its efforts to cut costs and boost profitability.

($1 = 6.5520 Chinese yuan renminbi)

(Reporting by Elzio Barreto; editing by Denny Thomas, Adrian Croft and Susan Thomas)