Freshfields Bruckhaus Deringer has picked up a high-profile mandate advising on the sale of state-owned mortgage lender Northern Rock by UK Financial Investments (UKFI), the body which manages the Government's stakes in UK banks.

Corporate partner Barry O'Brien, a longstanding adviser to the Newcastle-based lender's board, is leading the team advising Northern Rock, working alongside global head of finance Alan Newton. The sale is hoped to generate more than £1bn for the Treasury.

The magic circle law firm has also been appointed to advise UKFI on the sale following a competitive pitching process earlier this year.

The high-profile mandate will be regarded as a coup for the City giant. Freshfields was a regular corporate adviser to Northern Rock before it was taken into state ownership in 2008.

Freshfields was put forward to pitch for the UKFI mandate by Northern Rock, despite not being one of the four firms chosen in 2009 to advise UKFI on the winding-down of stakes in banks recapitalised during the financial crisis.

All four firms on the panel – Slaughter and May, Allen & Overy, Simmons & Simmons and Herbert Smith – pitched for the work. It has not yet been decided whether Freshfields will now be added to UKFI's law firm roster.

It is understood that Northern Rock's board argued that Freshfields should be considered for the sale given its knowledge of the business.

Freshfields originally advised Northern Rock on its 2007 bailout, with that deal seeing Slaughters corporate partner Charles Randall advising the Treasury.

The off-panel appointment has raised questions among advisers about the role of UKFI's legal roster, which was created after the Government was criticised for its heavy use of Slaughters in the immediate aftermath of the banking crisis.

Attention will also be focused on whether Slaughters' once-unchallenged position with the Treasury has been weakened. The Treasury in 2009 appointed Herbert Smith and legacy Lovells alongside Slaughters to advise on financial stability issues.

One corporate partner commented: "The instruction is likely to come as a blow to Slaughters, which was first in line to get the instruction before the pitch. Having said that, the firm's stranglehold on all the Government work has loosened in recent years."

News of Freshfields' appointment comes as Linklaters is understood to be advising Lloyds Banking Group on the sale of hundreds of bank branches at the request of European regulators following its takeover of HBOS during the economic crisis.