RBS must sell Williams & Glyn, which consists of 307 branches, as a condition of having received state aid during the 2007-09 financial crisis. The Treasury asked the Competition and Markets Authority (CMA) to assess what impact the sale would have on the British banking market in May.

The CMA had been due to announce its findings this month. However, the Treasury said on Friday that RBS had not yet finalised Williams & Glyn's business plan and it is not possible for the CMA to conclude its advice until Britain's financial regulator has examined RBS's plan.

RBS could be asked to increase the size of the Williams & Glyn business, which it was ordered to sell by European regulators.

Williams & Glyn must be sold by the end of 2017. The sale process has been costly and dogged by setbacks, largely related to technology problems. Industry sources have speculated the disposal could face delays.

RBS has said it remains on track to list the business on the London Stock Exchange by the end of next year and to sell the whole business by the end of 2017.

The disposal is one of a number of challenges facing Chief Executive Ross McEwan as he battles to turnaround the fortunes of the bank which was rescued by a 45.8 billion pound bailout during the 2007-09 financial crisis.

The government wants to sell at least three-quarters of its shares in the bank in the next five years and is expected to start selling its shares in the coming weeks, according to sources with knowledge of the government's thinking.

(Reporting by Matt Scuffham; Editing by Steve Slater)

By Matt Scuffham