AIB is to increase rates for variable mortgage holders by 0.5 per cent to 3.25 per cent from close of business tomorrow.
The rise will apply to loan to value variable and standard variable rate mortgages. Fixed rates will also rise for new business.
Tracker rates and existing fixed rate mortgages will be unchanged.
In the buy-to-let market, standard variable rate mortgages are unaffected by the change, but fixed rates will rise for new business.
The bank said it had “little choice” but to increase rates. The move had been flagged at the publication of the bank’s results last week.
“Funding availability on wholesale money markets for Irish financial institutions remains difficult," said AIB's head of mortgage products, Michael Quirke.
"Unfortunately, we have little choice but to introduce this pricing change, which is a measured response to the significant challenges which must be overcome if we are to achieve an economic return on our loan book and thereby return to a sustainable business model. All mortgage lenders are facing the same issues in this funding environment."
AIB's interest rate hike follows similar announcements by Bank of Ireland, Permanent TSB and the EBS.
Commenting on the rate increase, Fine Gael said banks should focus on their own cost bases rather than continually hitting hard pressed home owners.
The party's housing spokesman, Terence Flanagan, said the rate rise was "unacceptable".
“While the ECB rates remain unchanged, the banks have chosen to rip off variable mortgage holders to pay for their own reckless behaviour. Homeowners are at the pin of their collar trying to make mortgage repayments. Thirty thousand are in arrears. These variable rate increases will exacerbate the problem," he said.
“The Minister for Finance needs to take immediate control of the situation and stop banks from exploiting variable rate mortgage customers as a soft touch.”
Elsewhere, the Professional Insurance Brokers Association (PIBA) said the rate increase "would be a bitter pill to swallow for hard pressed mortgage holders".
The association, which is the largest group of independent mortgage and insurance brokers in the country, called on the Government to keep a watching brief to ensure rates are not allow to "ratchet up uncontrollably".