While it remains a hefty sum, it is just a fraction of the £20.3bn in rescue funds that saved the bank from collapse in 2008.
The Treasury said £19.5bn had been returned to its coffers from share sales and dividend payments to date.
UK Financial Investments (UKFI), which manages the stake in Lloyds, cut the holding by 1% to 2.95%.
While UKFI has been steadily selling off shares in Lloyds to fight national debt since 2014, efforts to offload shares in Royal Bank of Scotland - also rescued during the crisis - have stalled as it continues to grapple legacy issues.
In a statement, the Economic Secretary to the Treasury, Simon Kirby, said: "Lloyds' recent annual results show that we are in a good position to reduce our shareholding further and expect to recover all of the money taxpayers injected into the bank during the financial crisis."
Lloyds chief executive Antonio Horta-Osorio said: "Today's announcement moves Lloyds another step closer to full private ownership, and we are pleased that the group's strong financial performance has kept us on track to return more money to taxpayers than was put in."
Lloyds' recovery since the crash saw it announce its highest annual profits for a decade last month.
However, it has continued to make provisions to cover the cost of the PPI mis-selling scandal despite trying to draw a line under its exposure last autumn.
It has set aside £17.35bn to date.