Prime Minister Mark Rutte said the financial sector is now stable enough, there is sufficient interest in the market and ABN Amro is ready for a phased sale.
The decision had been expected earlier this year but was delayed amid uproar over members of the bank's board awarding themselves a 100,000 euro (USD 110,000) pay rise to compensate for losing their right to bonuses when the bank was nationalized in 2008.
Gerrit Zalm, the former Dutch finance minister who is now chairman of ABN Amro's managing board, welcomed the announcement, calling the sale, "a logical next step in the bank's development."
ABN Amro announced this month that its underlying net profit rose 44 per cent in the first quarter from a year earlier to 543 million euros, its best quarter in four years.
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The government said the sale via initial public offering could happen from the fourth quarter. The first tranche sold will be between 20 and 30 per cent of the bank.
The bank is now estimated to be worth 15 billion euros (USD 16.5 billion) following an aggressive restructuring that saw it cut jobs and sell off foreign units.
Finance Minister Jeroen Dijsselbloem said the government will build protective measures into the sale to prevent potential hostile takeovers.
"I do not want the bank to become a target again," he said.