The Tory Chancellor defended the sale of the bank, saying it represented the “best deal” for taxpayers.
However, the agreement, under which Sir Richard Branson’s firm will take over the bank, will see the nation’s coffers lose at least £400 million.
One of Mr Osborne’s party colleagues, Tory London MP Mark Field, claimed Mr Branson had got the bank “for a song”.
Labour warned that serious questions hung over the deal and Shadow Treasury Minister Chris Leslie described the sale as “a symbol of George Osborne’s poor judgment on the economy”.
The news came as Labour leader Ed Miliband called for a “more responsible” form of capitalism that would not see taxpayers forced to bail out bankers.
The Coalition will sell the bank to Virgin Money for £747m, a £650m loss to the taxpayer on the original £1.4 billion purchase, although a further £360m could potentially be recouped later.
It came as a shock when it was announced yesterday amid a blizzard of headlines questioning the Coalition’s economic plans.
Last night Mr Leslie wrote to the Chancellor demanding to know why the Coalition had gone ahead with the sale of the bank given the current global financial problems.
Europe’s political leaders are battling to get a grip on the growing eurozone crisis.
Three major European nations have required bailouts by the IMF, and only last week Italy’s long-term borrowing rate at unsustainable levels triggered concerns it may go the way of Greece, Ireland and Portugal.
Earlier this week the Bank of England also downgraded the outlook for the UK’s financial future, blaming the worsening European crisis.
Experts questioned whether the sale was a sign that the Chancellor did not believe that there would be significant global recovery in the short term.
Meanwhile, Mr Miliband outlined a call for a different form of capitalism that would control short-termism in the markets.
The Labour leader also demanded a staff member sit on remuneration committees deciding how much executives of big firms should receive.
Speaking to the Social Market Foundation in London, he said: “This simple reform would help forge a new compact between workers and employers, building trust that salaries at the top are deserved, that long-term decisions are being made.”