Rishi Sunak, the Prime Minister, said the loan would be “game-changing” for Ukraine’s ability to ward off Russian attacks.
“It’s fantastic news, it’s something that I personally and the UK have been leading on and championing for some time now,” he said.
The deal came despite initial objections from Germany and Belgium, who had legal concerns about setting a precedent by using frozen assets to borrow.
Berlin has been accused by some Western officials of hampering support for Ukraine in recent months, amid a row between politicians in the country’s ruling coalition about spending public money on the war.
Berlin was concerned that seizing the money could open it up to more lawsuits demanding reparations for Nazi crimes in the Second World War, The Telegraph understands.
Around $220 billion of frozen Russian assets are held in the Belgian securities depository, Euroclear. Brussels had opposed interfering with the sum in any way for fear of undermining its banking sector.
The loan is the result of months of negotiation between G7 countries over how to use Russian assets frozen at the beginning of the war, most of which are in Europe.
The US had originally proposed to send the full $320 billion directly to Kyiv, but this was blocked by EU leaders over fears of legal repercussions from the Kremlin.
A second version of the plan, proposed by the EU, would have transferred the $5 billion annual interest earned from the assets to Ukraine while leaving the underlying capital untouched.
The compromise agreed on Thursday will use the profits to secure a loan that will ultimately be guaranteed by the US Treasury, officials said.
Ursula von Der Leyen, the president of the European Commission, said that all members of the G7 would contribute to the loan but the extent of each country’s participation was still to be worked out.
‘Forward leaning’
A Foreign Office source said: “It’s always been the case that us and the US have been most forward-leaning, needing to persuade the others.”
US officials hope the loan plan will avoid a “tantrum” from Mr Zelensky at next month’s Nato summit in Washington DC, where Ukraine is not expected to be offered a concrete timeline for joining the alliance.
At last year’s summit in Lithuania, Nato allies agreed to “extend an invitation to Ukraine to join the alliance when allies agree and conditions are met”. Mr Zelensky described the lack of a timeline as “unprecedented and absurd”.
In Washington, Ukraine is set to be shown a “well-lit bridge” to membership, but no further assurances on when its request to join the alliance will be granted.
The announcement of the loan came as the UK announced new sanctions on a “shadow fleet” of Russian tankers that have been used to circumvent British and G7 restrictions on oil exports.
It follows months of concern about funding for Ukraine, which was held up in the US Congress until April amid objections from Republicans.
Mr Zelensky warned that without a major cash injection from the West, he would be unable to fend off Russian missile attacks on civilians in cities this summer, nor retake territory lost since Vladimir Putin’s invasion.