The New York City-based lender said it would raise the money through a combination of stock and debt, the bulk of which would come from a $17 billion common stock offering.

"We are pleased to be able to repay the U.S. government's trust preferred securities and to terminate the loss-sharing agreement," Citigroup CEO Vikram Pandit said in a statement.

"As I have stated many times over the past year, we planned to exit TARP only when we were convinced that it was prudent to do so."

Citigroup became one of the biggest recipients of bailout money last year after the government injected $45 billion into the company to help stabilize the embattled lender.

Concerned about the company's underlying health and ability to endure future loan losses, the government converted $25 billion of its preferred-stock stake in the company into common stock over the summer. That effectively gave U.S. taxpayers a 34% stake in one of the world's largest financial institutions.

Citigroup said Monday that the government would get rid of those shares, starting with the sale of $5 billion worth of stock. The remaining shares would be sold "in an orderly fashion" over the next 6 to 12 months.

The company also said it was terminating the loss-sharing agreement it had struck with regulators in November in which the government agreed to backstop some losses against more than $300 billion in troubled assets.

Monday's announcement, while encouraging for taxpayers, is expected to push the company even deeper into the red when it delivers its fourth-quarter results on Jan. 19. Analysts are currently expecting the company to report a loss of $1.1 billion.

More importantly, it will ultimately free the company from a variety of government restrictions, namely pay limits for its top executives.

On Friday, White House "pay czar" Kenneth Feinberg capped base salaries for 75 Citigroup employees at $500,000 for the remaining three weeks of 2009. Those changes were expected to serve as the model for their pay next year as well.

Fearing such changes, large financial institutions have been scrambling to return bailout money to the government.

Last week, rival Bank of America (BAC, Fortune 500) got out from under the government's thumb by repaying the full $45 billion in bailout money it received.

Citigroup (C, Fortune 500) shares were unchanged in pre-market trading Monday after climbing 2% in the previous session.