However, officials said the airline's heavy losses meant privatisation would be a long-term prospect.
A report approved by the cabinet said the state should retain a blocking minority of 25.1 per cent in Lufthansa until after completion of the European Community's internal market because other member countries still had large stakes in national airlines.
'The current federal government holding can be reduced considerably. The goal remains the complete withdrawal of the federal government from the company,' the report said.
Before any further steps towards privatisation could be taken, the government would have to await reports on legal problems concerning old-age provisions for Lufthansa staff.
The government has gradually reduced its holding in Lufthansa in recent years. The airline reported a group net loss of DM426m ( pounds 152m) in 1991 and its chairman, Jurgen Weber, said it did not expect a significant improvement in 1992.
Shares in Lufthansa rose sharply after the cabinet decision. Dealers said the news had injected some interest into the airline's stock, which had been languishing near its low for the year after recent bad news on its profit outlook.
One trader said: 'There are small and larger players in the market for Lufthansa. The price was pretty much at rock bottom and the news is catching people's imagination.'Reuse content