U.S. private equity firm Lone Star is the preferred bidder for Lloyds Banking Group's 1 billion pound Project Royal portfolio of UK commercial property debt, one source familiar with the matter said.

A deal between Lloyds and Lone Star has yet to be signed, the source told Reuters on condition of anonymity.

Lone Star's bid was backed by about 300 million pounds of senior debt from Royal Bank of Canada and Citigroup , the source said.

The Project Royal portfolio comprised about 1 billion pounds of debt secured against commercial property worth about 700 million pounds, the source said.

If the deal does go ahead, it will mark a further step in Lloyds' ongoing efforts to reduce the 23.6 billion pounds of troubled loans held within its corporate real estate business support unit.

Lone Star and Lloyds declined to comment.

No other details were immediately available.

Earlier on Wednesday, real estate data provider CoStar reported that Lone Star had beaten rival bidders Cerberus and Colony Capital.

(Reporting by Andrew Macdonald; Editing by Jon Loades-Carter and Chris Wickham)