The bank posted the loss after being forced to make a £3.2bn provision for payment protection insurance (PPI) refund claims.
This was more than any other high street lender, and it came at a time when Lloyds was also being hit by deteriorating loans in Ireland.
In Ireland, its impaired loans increased by £3.2bn to £17.6bn compared with £14.4bn in December 2010.
Overall across the group the bank said it had cut its impairment costs for bad loans by 17 per cent to £5.4bn.
The bank currently has £23.6bn worth of corporate real estate loans held within its business support unit (BSU), of which £16.2bn is impaired. In December 2010 Lloyds had £26bn of these loans in BSU, of which £17.5bn were impaired.
The statement also reveals plans to make £1.5bn of annual savings in 2014, which will involve the reduction of 15,000 roles throughout the group by the end of 2014.
Excluding the one-off expense of the PPI provision, the high street bank reported a decline in pre-tax profit to £1bn from £1.6bn in 2010.
The group is however on track to meet its Merlin lending agreement to business; with £21.2bn of committed gross lending to companies in the first half of 2011, of which £6.7bn was for small and medium-sized businesses.
In its international business Lloyds’ impairment charge amounted to £2.5bn, compared to £2.2bn in the first half of 2010. The bank said this reflected the continued deterioration in real estate values in Ireland and in Australasian property markets to which the group is exposed.
Total impaired loans in its international unit increased by £3.4bn to £23.8bn, compared with £20.3bn at December 2010.
In its outlook for the UK economy, Lloyds expects UK GDP growth of 1.5 per cent in 2011, settling at above two per cent in 2012, with UK base rates increasing from the second half of 2011, unemployment improving and property values stabilising.
The bank also expects a two per cent reduction in house prices in 2011.