LONDON (Reuters) - Britain has cut its stake in Lloyds Banking Group (>> Lloyds Banking Group PLC) to below 16 percent, taking the total raised through the sale of the government's shares in the bank to more than 12.5 billion pounds ($19.5 billion).

Lloyds said on Thursday that Britain's finance ministry had reduced its stake to 15.9 percent, from 16.9 percent, in a further step towards its full privatisation which is expected next year.

The bank was rescued during the 2007-9 financial crisis at a cost of 20.5 billion pounds, leaving taxpayers with a 43 percent stake. Britain's finance ministry began selling its stake in September 2013.

The government mandated Morgan Stanley (>> Morgan Stanley) to sell its shares and its stake has been cut from 24.9 percent through the plan, which was launched last December and is due to carry on until the end of 2015.

In the past 4-1/2 months alone the government's holding has been reduced by 9 percentage points.

"I am determined to build on this success, and to continue to return Lloyds to the private sector and reduce our national debt," said finance minister George Osborne.

The government's remaining stake is worth 9.9 billion pounds at current share prices. It is expected to offer retail investors the chance to participate in an offer of several billion pounds worth of Lloyds shares next year.

(Editing by Sinead Cruise and David Holmes)

By Matt Scuffham

Stocks treated in this article : Morgan Stanley, Lloyds Banking Group PLC