LONDON - European regulators could compel Britain's state-controlled banks to sell chunks of their assets to comply with competition rules, the EU's top competition regulator said here Tuesday.

EU Competition Commissioner Neelie Kroes singled out Royal Bank of Scotland and Lloyds Banking Group, saying they were only able to continue enjoying market-leading positions because of "massive" government aid.

The British government has spent billions of pounds to bail out RBS and LBG since the eruption of the global financial crisis in late 2007, in a bid to stabilise the fragile financial system.

But Kroes, charged with ensuring fair competition in the 27-nation European Union, said competitors that did not receive state help would now be looking for a level playing field.

"The massive aid received by banks such as Lloyds and RBS allows these banks to remain leaders on markets which are concentrated," Kroes said in a speech to a British Bankers Association conference in London.

Kroes cited "problems" with LBG's share of the retail banking market and the RBS share of the small and medium-sized enterprises (SME) and corporate banking markets.

"For Lloyds the problems rest with their share of the retail banking market, and with RBS it is UK SME/corporate banking markets.

"So the need for competitive market structures is stronger than ever; the likelihood of significant divestments by RBS and Lloyds is strong," she said.

The European Commission would be working with the British government to ensure banks were viable without state support and operated with business models that reduce systemic risks, she said.

She said there was a "clear case" for the Commission to follow its rules on state aid in respect to RBS and other rescued institutions.

"This means restructuring must follow rescue aid," she said.

"Banks cannot be rescued forever. They need to restructure to have a sustainable business without relying explicitly or implicitly on another bail-out."

RBS is 70 percent owned by the British government after being ravaged by the credit crunch and its 2007 takeover of Dutch group ABN Amro at the top of the market. Last year, it recorded Britain's biggest ever corporate loss of more than 24 billion pounds ($58 billion).

LBG, which is 43-percent owned by the government after a huge bailout, on Tuesday announced it was axing 2,100 more jobs as it sought to streamline operations and recover from the financial crisis.

The banking group has now slashed around 7,000 jobs since its creation in January, when Lloyds TSB bought rival lender HBOS in a government-brokered deal.