The Church of England will have a major stake in Britain's newest "ethical" banking chain, less than a month after defending its investments in the weapons industry.

Bailed-out firm RBS has announced the sale of more than 300 branches which will trade as Williams & Glyn.

Meanwhile the Church of England's commissioners, which command the institution's £5.5bn investment fund, confirmed their role as investors in the new chain.

First estates commissioner Andreas Whittam Smith said they were "excited to have the opportunity to be involved in creating a UK challenger bank operating to the highest ethical standards and giving consumers more choice."

But the commissioners roused peace activists' ire earlier this month over funding weapons production.

The church has invested up to £10m in manufacturing firm General Electric which makes specialised components for cluster bombs, predator drones and the F101 fighter jets used in Iraq and Afghanistan.

But the church defended a decision earlier this month to retain the shares, saying that General Electric still qualified as an ethical investment.

Companies that derive less than 10 per cent of their turnover from arms sales are allowed by the church. While General Electric is one of the world's biggest arms manufacturers, it still constitutes just 3 per cent of its total turnover.

The Campaign Against Arms Trade's Kaye Stearman said the church was literally trading on its reputation.

"If the church is committed to following an ethical investment policy, it should drop the GE shares from its portfolio and invest it in companies producing more ethical and beneficial products," she said.