The insurer said that Bank of Scotland would help with the marketing of its shares portfolio, worth an estimated pounds 900m.
Standard Life's decision on the Bank of Scotland shares follows a four- week review of all options in relation to its stake in the bank, which it described as a "a large proportion" of its UK equity portfolio.
Scott Bell, the insurer's group managing director, said: "We continue to have confidence in Bank of Scotland's future prospects and strategies, but following our review of the options available to us, we have now decided in the interests of our policyholders to rebalance our equity portfolio."
The decision helped to cool widespread speculation over Bank of Scotland's future as an independent force in UK banking. Shares in the bank dropped by 16.5p to 248p when the news emerged.
Potential bidders tipped for the one third stake in the bank included its rival, Royal Bank of Scotland, together with Abbey National, Lloyds and a number of foreign banks, especially from the US.
Standard Life's move, which is believed to have caught Bank of Scotland unawares, led to the resignation of Sir Bruce Pattullo, the bank's governor, from the insurer's board.
It is understood that Bank of Scotland was keen to see the shares disposed of through a secondary offering, thus allowing it to maintain its independence, rather than being sold in one single or several large parcels.
Sir Bruce said yesterday that the bank had performed strongly and had confidence about its future.
"Naturally we are sad that Standard Life has decided to reduce its stake, but recognise that the growth in the value of the investment has resulted in a need for it rebalance its portfolio," he said.
He added that he would comment on Bank of Scotland's current trading at the bank's annual general meeting later today.
In April, the bank reported a strong climb in pre-tax profits for last year from pounds 268.7m to pounds 449.7m - a result that was accompanied by a increase in the final dividend from 3.18p to 3.69p.
Although shares in Bank of Scotland fell after Standard Life announced how it would sell its stake, analysts said they were not too concerned by the drop.
A secondary offering undermined bid hopes in the stock, dealers said: "Admittedly it is not easy to find someone who can afford to buy the Bank of Scotland, given its size, and [that] a premium would be required," one said.
"But my sense is that this just kicks the shares back down to where they were before all the news hit." Before the announcement a month ago that Standard Life was looking to dispose of the stock, Bank of Scotland's share price stood at 242p. By the end of that week it had leapt to around 270p and reached a high of 286.5p on 21 May.Reuse content