This will mark the first time that an international financial organisation has invested in covered bonds issued by a Greek bank since the country's debt crisis began in 2010.

Piraeus Bank, Greece's largest lender by assets, plans to issue a five-year 500 million euro ($590 million) bond.

"The transaction demonstrates the group's reinvigorated support for companies across the country seeking to expand," the EIB's president Werner Hoyer told reporters in Athens on Friday

Small business forms the backbone of Greece's economy which has started to recover from a multi-year deep recession that shrank it by a quarter and drove unemployment to record highs.

Hoyer said the funding will allow firms in tourism, manufacturing and services to generate jobs in Greece, where a jobless rate of 21.1 percent in the second quarter remains the highest in the euro zone.

EIB believes the bond placement will help Piraeus Bank to diversify its funding sources and boost its lending capacity, while also sending a signal of confidence.

Credit Suisse is the dealer manager of the issue.

Under the deal, Piraeus Bank has committed to fund 700 million euros of new investments by small and medium-sized firms across Greece, EIB officials said.

The European Investment Fund (EIF) will buy another 50 million euros of the bond, with the European Bank for Reconstruction and Development (EBRD) also providing financial backing.

Hoyer, who launched a new EIB office in Athens, said the group was on track to reach financing of 2 billion euros in Greece after a 1.0 bilion euro credit line for small businesses launched with four Greek banks in December.

The EIB is the long-term lending institution of the European Union, owned by its 28 member states.

(Reporting by George Georgiopoulos; editing by Alexander Smith)

By George Georgiopoulos