(Reuters) - Ireland is set to take a majority stake in top lender Bank of Ireland (BKIR.I) as part of a massive international bailout that could leave the state with effective control of the country's top three banks.

The state's ownership of Bank of Ireland could rise to near 80 percent from 36 percent now under the bailout, put at up to 85 billion euros ($114 billion), and Allied Irish Banks (ALBK.I) could join Anglo Irish Bank in being fully nationalized.

The European Union and International Monetary Fund (IMF) have agreed to provide external assistance to Ireland to shore up its banks and give them access to cheaper state funding.

Billions of the bailout could be used immediately to recapitalize the banks, but most will be a backstop in case they need more in the future and to ease funding strains.

Irish officials have said they wanted to overcapitalize banks. Lenders are likely to be told to hold a core Tier 1 capital ratio of about 12 percent, giving a bigger cushion than most international rivals to withstand future shocks, and will need to draw on the backstop capital when the ratio drops below 10.5 percent, a person familiar with the matter said.

Bank of Ireland could need over 3 billion euros and AIB even more, and the government may be the only provider of funds.

"In the current environment I do not think they stand any chance of getting all that privately," said Ciaran Callaghan, analyst at NCB in Dublin, estimating that would leave the state with about an 80 percent holding in Bank of Ireland.

Lifting the core Tier 1 ratio of Bank of Ireland, AIB and Anglo Irish Bank would cost almost 8 billion euros, Reuters calculations showed, including about 5.6 billion for AIB, 1.6 billion for Bank of Ireland and 500 million for Anglo Irish Bank.

More would be needed if preference shares and other types of capital were excluded. But banks could be given longer to reach that minimum capital level and be allowed to use retained earningsor tap outside investors to limit dilution.

A plunge in share prices this week has increased the dilution for shareholders and the size of the government stake.

Bank of Ireland shares fell 11 percent to 26.7 cents, cutting its market value to under 2 billion euros. AIB shares lost over 18 percent at one stage, but ended 3 percent higher, valuing it at less than 500 million euros. Both have lost over a third of their value this week.

The government could be left with over 99 percent of AIB and may only leave the shares listed to make it easier to sell down the stake in future, analysts said.

Irish Prime Minister Brian Cowen said detail of the recapitalization had not been finalized.

Extra cash could be pumped into Ireland's ailing banks as soon as this weekend, the Irish Independent reported on Wednesday.

As well as providing capital, the government wants to shrink banks' loan books to ease a funding strain which has intensified in the past six months after an exodus of deposits, adding to lenders' dependence on ECB funding, which has risen to 130 billion euros.

Ireland could also impose a levy on banks as a term of the bailout and to ease a deadlock over the country's low corporation tax, The Irish Times reported.

Banks have been told to sell assets to focus on aiding the domestic economic recovery. That could see AIB being told to restart a sale of its British business, after halting the process when failing to find a buyer.

Some EU politicians are calling for Irish bank senior bondholders to share taxpayers' pain and take haircuts on the debt.

But most of that debt is explicitly guaranteed by the Irish government, and bankers said such a move would damage prospects for long-term funding for Ireland and other euro zone countries.

The banking crisis has rocked Ireland and stretched its finances. The deeply unpopular government on Wednesday unveiled a 15 billion euro four-year austerity plan of deep spending cuts to meet the terms of the bailout.

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