The planned sale by the 75-percent state-owned bank sparked political opposition earlier this year over the likelihood that the home loans would be sold to non-banking entities and forced the government to promise legislative changes.

The initial inclusion of the 4,300 so-called "split" mortgages worth 900 million euros elicited anger in parliament as the bank has agreed to let indebted homeowners with those loans pay as much as they can afford.

"We will continue our engagement on the regulatory classification of these mortgages and, at the same time, we will explore different options including ones that enable us to maintain the day-to-day relationship with the account holders," CEO Jeremy Masding said in a statement.

Altogether, the number of mortgages tied to the sale of the portfolio, dubbed Project Glas, was cut to 11,200 from 18,000.

PTSB said it expected to provide an update to the market with its interim results in the third quarter and that investor interest in the transaction was strong.

The mortgage lender also said that its new lending, which surged by 74 percent last year, grew by a further 60 percent year on year in the first quarter. It increased its share of the fast recovering Irish mortgage market to 14 percent.

It targeted 13-17 percent by the end of 2018 when it re-listed on the stock exchange three years ago.

"The decision to reduce Project Glas is sensible as it enables the sale process to progress at a time of ongoing strong investor appetite for Irish non-performing assets," analysts at Davy Stockbrokers wrote in a note.

"Alternative options are under consideration for the remainder of the original portfolio, which, in our opinion, may result in a more benign outcome than an outright sale."

(Reporting by Padraic Halpin; editing by Jason Neely)