Spain snatched the rescue line in 2012 to overcome a financial emergency in the banking system, which was flooded with bad loans after the bursting of a decade-long property bubble in 2008.
Prime Minister Mariano Rajoy's government said it could now repay the first €1.3-billion tranche back to Spain's creditors.
"Spain will reimburse €1.3 billion of financial assistance because we can do it and so as to strengthen confidence in the economy," Deputy Prime Minister Soraya Saenz de Santamaria told a news conference after a weekly cabinet meeting.
Spain will also cut its net financing requirement -- the amount of money it has to raise to finance the state's activities — by €10 billion to €55 billion in 2014 as its borrowing costs fall and tax receipts rise during an economic recovery, she said.
Spain emerged in mid-2013 from five years of stop-start recession, showing a gradual recovery in activity since then yet not enough to signficantly dent the nation's 26-percent unemployment rate.