LONDON (Reuters) - British lawmakers challenged public officials on Thursday over whether they had allowed more than 2 billion pounds ($3.1 billion) of government shares in Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) to be sold too cheaply last month.

As global share prices started to come off their highs in early August, the British government sold 5 percent of RBS at a price worth a third less than it paid when it rescued the bank with 46 billion pounds of public money at the peak of the 2007-09 financial crisis.

Large investors were offered shares in RBS for 330 pence each, far below the 502 pence the government paid and a market price of more than 400 pence a share reached earlier in 2015.

Speaking to the British parliament's Treasury Committee, the chairman of UK Financial Investments (UKFI), the public body that advises finance minister George Osborne on share sales, said he was confident the public had received good value.

"I don't think it was cheap. On our valuation analysis it wasn't cheap, nor was it cheap compared to the market price on the day," UKFI Chairman James Leigh-Pemberton said.

RBS shares are currently trading at 330 pence.

RBS's share price was depressed because it was an illiquid stock in which the government had held a 78 percent stake, he said. Future sales should attract a wider range of investors, potentially willing to pay a higher price, he added.

Another UKFI official, Oliver Holbourn, said stock markets in the United States and Europe were close to record highs when Osborne decided to sell the shares, and that it was wrong to assume that delaying a sale would have led to a higher price.

The banks handling the sale -- Citigroup (>> Citigroup Inc), Goldman Sachs (>> Goldman Sachs Group Inc), Morgan Stanley (>> Morgan Stanley) and UBS (>> UBS Group AG) -- received just 1 pound each in payment, UKFI said.

Lawmakers said these banks did not typically work for such low fees, and questioned their true motivation.

UKFI said the prestige of running a large British government share sale and the ability to market shares of interest to a wide range of potential clients was sufficient incentive for the banks, and that the banks received no other financial benefit.

(Editing by Mark Heinrich)

By David Milliken