By Robert-Jan Bartunek and Alastair Macdonald
BRUSSELS (Reuters) - The European Stability Mechanism approved the release of a third tranche of bailout funds to Greece worth 8.5 billion euros ($9.68 billion) on Friday, the ESM said in a statement.
A first disbursement will amount to 7.7 billion euros and is expected to be made by on Monday, the euro zone bailout fund said. Some 6.9 billion euros will be used to service debt and 0.8 billion to clear arrears.
Greece needs new loans under its current 86-billion-euro bailout program, the third since 2010, to make debt repayments due this month.
"This payment is recognition of the tremendous efforts that the Greek people have continued to make to stabilize their economy," European Economics Commissioner Pierre Moscovici said in a statement.
A further 800 million euros may be paid out in September, subject to the Greek government paying arrears, the ESM added.
"The government should continue on this path to rebuild a competitive economy and regain investors' trust," ESM Managing Director Klaus Regling said.
At a meeting last month, euro zone finance ministers reached a political deal to disburse new financial aid to Athens. But the actual disbursement was linked to some conditions that needed to be fulfilled by Greece.
One of the issues was a case involving three former privatization officials from Italy, Spain and Slovakia, who had been charged in Greece with breaches of duty during the sale in 2015 of state properties. Greece has dropped the charges.
The Eurogroup is due to meet again on Monday in Brussels.
(Editing by Alastair Macdonald)