(BRUSSELS) - The European Commission has approved a British half-trillion-pound bank rescue plan intended to stabilise financial markets.

The EU's executive arm said in a statement overnight on Monday that it "found the measures to be compatible with EU state aid rules, because they were an appropriate means to remedy a serious disturbance in the UK economy, while avoiding unnecessary distortions of competition."

The three-part package also makes available 200 billion pounds (349 billion dollars) in short-term loans and another 250 billion pounds to guarantee loans between banks.

The government also said it would make taxpayers' money available to buy shares in troubled banks, providing them with fresh capital in a bid to prevent a collapse of the banking system.

On Monday, the British government pumped 37 billion pounds into three struggling banks, sending world stocks soaring.

The government hopes the measures will overcome the reluctance of banks to lend to each other, which is at the root of the current crisis.

The European Commission, having scrutinised the package under a "new accelerated procedure" over the weekend, said it "would provide new capital to eligible banks and building societies, guarantee short and medium term debt to encourage inter-bank lending and offer liquidity to banks under strict conditions."

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