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Barclays has confirmed it will not call on government funding to raise its Tier 1 capital and will issue preference shares to investors instead.

The bank said it will raise more than £6.5 billion in capital from issuing preference shares, ordinary shares and through withholding this year's dividend payment.

Barclays intends to withhold dividend payments until the second half of 2009, which will raise around £2 billion for the bank.

The bank will also issue £3 billion of preference shares, another £3bn in ordinary shares, has made an agreement with an existing investor to contribute £1 billion in new capital and will make cutbacks to save a further £1.5 billion.

This will take Barclays' Tier 1 capital, a measure of a bank's financial strength, to 11 per cent.

The measures are part of the government's plan to rescue the banking system, which requires banks to increase their reserves to at least ten per cent.

In total, UK banks must raise £50 billion, some of which will be borrowed from the government in return for a stake.

It is hoped the action will restore confidence in the banks, allowing institutions to start lending to each other again.

Barclays warned that although it will still have access to the government's facility if it cannot raise the required capital, the terms may not be so favourable.

In a statement, the bank said: "Barclays is well capitalised, profitable and has access to the liquidity required to support its business."

Shares in Barclays responded well to the news the bank would not require government cash, as the bailout money comes with conditions and result in part-nationalisation as well as operating restrictions.

Shares jumped to 242.25p in morning trading after closing at 207.50p on Friday.

HSBC was the first bank to turn down the government's offer of cash and has already increased capitalisation for its UK business internally.

Royal Bank of Scotland, HBOS and Lloyds TSB have agreed to part nationalisation in return for the bailout.