The sale of the indexed bonds by the Central Bank of Iceland Holding Company ehf (ESI) would begin within the next six months and be carried out in stages over five years, the bank said in a statement on its website.

Sedlabanki took over assets left with it as collateral when the country's three main commercial banks - Kaupthing, Landsbanki and Glitnir - collapsed under the weight of massive debts in 2008, forcing Iceland to seek aid from the International Monetary Fund (IMF).

The assets, along with general claims against the estates, were later transferred to ESI with the goal of eventually selling them and unwinding the holding company.

ESI now plans to establish investment funds to hold the assets which will in turn issue bonds to be listed on the NASDAQ OMX Iceland exchange. Initially ESI will own all the bonds but will gradually sell them off over the coming years, the bank said.

"ESI plans to sell about one-fifth of the bonds each year, although this plan is subject to change in accordance with market conditions," the bank said.

Sedlabanki said in a separate statement the sales would be made in consultation with the governors of the central bank and be monitored closely as they could affect the liquidity of financial institutions as well as the broader financial system.

(Reporting by Niklas Pollard; Editing by Susan Fenton)