The Government is cutting the rate of interest on its £3.26 billion loan to Ireland, George Osborne announced tonight.
The Chancellor insisted easing the pressure on the struggling country was in the UK's "national interest".
The move came after eurozone states agreed a new bailout package designed to shore up the positions of debt-laden members such as Greece and Ireland.
Mr Osborne said he had told his Dublin counterpart Michael Noonan of the decision to reduce the bilateral loan interest this morning.
"I've been arguing for some time that the interest rates charged for eurozone loans were too high. I'm pleased therefore they have now reduced those rates," he said.
"That enables Britain to cut its rate on its loan to Ireland, while ensuring all of the benefit goes to Ireland and not to higher interest rates paid to euro area governments. We will still be more than covering the cost of our borrowing.
"We stayed out of the Greek bailout as promised. But, for Britain, Ireland is a special case. Our loan will help them and is in our national interest."
At the emergency summit in Brussels, the eurozone leaders opted to double the maturity of Greece's rescue package from seven and a half years to 15 years and cut the interest rate to about 3.5%.
The softer lending conditions were also extended to bailed-out Portugal and Ireland in an attempt to finally ensure the stability of the single currency and stave off debt contagion from spreading to Italy and Spain.
In a joint statement, the leaders said: "We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap.
"The total official financing will amount to an estimated 109 billion euro (£95.9 billion).
"This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece."
Another key aspect of the agreement is an expansion of the role of the EFSF rescue package so it can act more freely.
Under the plan the private sector will provide 37 billion euro (£32.5 billion) in support to Greece.
Welcoming the deal earlier, Mr Osborne said: "The first thing British taxpayers should know is that we have delivered on our promise to keep the UK out of the Greek bailout.
"But Britain also has a huge interest in a stable eurozone. Today's package from eurozone countries to support Greece is an important and positive development.
"Even more positive is the demonstration that eurozone political leaders can take decisive economic action.
"That is what they now have to sustain, not just on the details of this package, but also on the longer term changes needed to make the euro work.
"They have shown they can get a grip, now they need to keep it."