Northern Rock plans to cut 2,000 jobs and shrink its lending book by 50 billion pounds ($101 billion) as it seeks to comply with European rules for its state rescue and repay billions of pounds of taxpayers' money.

Britain's biggest casualty of the global credit crisis, which was nationalised last month, said it planned to halve its assets by 2011. It also plans to repay about 25 billion pounds of loans from the Bank of England within four years.

For a mortgage lender, assets are the loans it has made to homeowners. Northern Rock's loans amount to between 100 billion-110 billion pounds.

Northern Rock needs to win support for its rescue plan from European regulators, which allow public support in some circumstances to prevent companies from going bust, but prohibit state aid that distorts competition.

The rescue plan comes as banks across the world lurch into crisis following the shock collapse of Bear Stearns last week.

Ron Sandler, the troubleshooter appointed Northern Rock executive chairman, said he will seek a "modest level" of new prime mortgages, sufficient to replenish a pool of loans for its Granite securitisation vehicle.

But he made it clear he will press borrowers to move elsewhere, so that it receives proceeds from redeemed mortgages.

"We will ensure that mortgage holders are made fully aware of the choices they have in the market ... and will guide them to alternative solutions that may work well for them," Sandler told reporters on a conference call.

He expects a "progressive repayment" of the BoE loan and the release of government guarantees over the next three to four years. The bank will cut about one-third of its 6,000 jobs by the same date, with most losses likely in the first year.

The aim is for Britain's fifth biggest mortgage lender to return as "a smaller, more focussed, financially viable mortgage and savings bank" to the private sector.

The Newcastle-based lender plans to increase its level of retail deposits but said it will close its savings operation for new customers in Denmark and repay deposits to customers there.

Sandler needs to reassure European regulators that Northern Rock will not get a competitive advantage from being under state control. Banks in Denmark had already complained.

The European Commission, which generally requires firms that receive restructuring aid to cut operations to lessen their footprint and limit any advantage, is expected to open a formal probe, which could take weeks or months.

Sandler said he is confident of getting approval from Brussels as the bank strikes "a sensible balance" between being state owned and competing fairly.

UK rivals have said they will monitor the savings and mortgage rates Northern Rock offers.

The Building Societies Association said the government needs to address the threat to competition in the UK savings market "as a matter of urgency". A spokesman for the British Bankers' Association said: "We'd expect to see Northern Rock running with the pack rather than at the top of the best buy tables."    

Sandler also acknowledged he is attempting to revive the bank against a tough backdrop of a slowing housing market and economy and a global credit crunch.

Rivals such as HBOS and Alliance & Leicester have also scaled back their lending appetite, which could influence how many mortgages Northern Rock can redeem.

"If the markets that we face are choppier then it makes the achievement of the plan somewhat harder, but we remain confident," Sandler said, saying his plan was robust.

Sandler said he will retain the Northern Rock brand and branch network, but it would consider selling portions of its mortgage book and withdraw from new unsecured lending.

In an overview of strategy before a full business plan is submitted in the next two weeks, Northern Rock said it plans<