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 yesterday.
“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 this week’s 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 per cent.
The softer lending conditions were also extended to bailed-out Portugal and Ireland to try finally to 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.
This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece.”
Mr Osborne said the UK also has a huge interest in a stable eurozone and that the decision was an important and positive.