BRUSSELS, Dec 20, 2012 (AFP) - The European Commission cleared restructuring plans and aid for 4 small Spanish banks on Thursday as part of efforts to stabilise the country's stricken banking system.

Banco Mare Nostrum, Banco Caja 3, Liberbank and CEISS were classed as Group 2 banks, meaning they were "unable to meet their capital shortfall without having recourse to state aid," a statement said.

The Commission said the restructuring of the 4 banks "will allow them to become viable in the long-term without continued state support" while the plans contain provisions to limit distortions to competition.

Late last month, the Commission approved the makeover of major banks Bankia, NCG Banco, Catalunya Banc and Banco de Valencia under an accord agreed with Madrid in June, when Spain appeared on the brink of needing a full bailout.

The June agreement provided Spain up to €100 billion from its Eurozone partners to help rescue its banks, brought to their knees by a mountain of bad debt built up in a property bubble which burst in 2008.

"Great progress" made

On December 5, the European Stability Mechanism, the Eurozone's new defence fund, announced the release of its first financial assistance funds, nearly €39.5 billion, for the recapitalisation of the Spanish banks.

The bulk of that amount went to the four major lenders in Group 1, with most of the remainder now going to the 4 smaller banks in Group 2.

EU Competition Commissioner Joaquin Almunia said the two sides had made great progress, with 8 banks restructured since the agreement with Madrid was finalised.

"The restructuring ... will make these banks viable again, thereby contributing to restoring a healthy financial sector in Spain, while minimising the burden for the taxpayer," Almunia said in a statement.