Customer complaints to British banks and insurers rose by nearly two thirds in the first half of 2012, reflecting a growing consumer backlash over mis-sold loan insurance, the country's financial regulator said on Thursday.

The total number of complaints rose by 59 percent, largely driven by grievances over so-called payment protection insurance, which were up 129 percent, the Financial Services Authority said.

Britain's banks have set aside 8.8 billion pounds to compensate customers who were mis-sold PPI, designed to keep up loan repayments in the event of a loss of income.

Some banks sold the insurance alongside loans without informing customers they were buying it, or sold it to self-employed people who would not have been eligible to claim.

Lloyds Banking Group , Britain's biggest retail bank, received 860,000 complaints, an increase of 146 percent, topping a list of the country's five major lender.

(Reporting by Myles Neligan; Editing by David Cowell)