The deal for ICBC takes Temasek deeper into China's banking industry, which has grown from insolvency six years ago to become a sector that holds four of the world's top 10 banks by market value.
Mr Ding Wei, Temasek's China head, told Reuters that it bought into ICBC because the price was reasonable and the investor was positive about the bank and China's long-term development.
Temasek already owns stakes in China Construction Bank and Bank of China.
China assets accounted for 20 per cent of its portfolio as of March last year.
Mr Song Seng Wun, an economist at CIMB, said: "Temasek has laid out its strategy before on where it thinks growth is. Within Asia, China anchors the growth, so Temasek is putting money where its mouth is."
The latest purchase was of 3.55 billion H-shares, or about 1 per cent of ICBC, the world's largest bank by market value.
Temasek now has a 1.3 per cent stake in ICBC, a Temasek spokesman said. This includes ICBC shares that the investor owns directly, as well as various other stakes held by Temasek-linked companies.
China's banking industry has come under fire lately, as customers and politicians have cried out that the sector's massive profits are coming at the expense of citizens.
Low deposit rates, coupled with steady customer fees, are at the heart of the protests.
Goldman's block trade is in line with its plan to reduce its stake in ICBC, which it bought before the Chinese bank's 2006 initial public offering (IPO).
After the sale - its fourth - Goldman has roughly US$3 billion worth of ICBC shares remaining.
Goldman sold the Hong Kong-traded shares of ICBC at HK$5.05 each (S$0.82), or a 3.1 per cent discount to last Friday's closing price.
The other roughly US$200 million worth of shares were sold to other institutional investors, a source said.
Hong Kong shares of ICBC, which has a market value of US$240 billion, fell as much as 1.7 per cent early yesterday but pruned the losses to be down 0.8 per cent in the afternoon, in line with the broader market.
Its shares are up about 12 per cent so far this year, in line with a similar rise on the benchmark Hang Seng Index.
Besides Goldman, American Express (Amex) is the only major foreign financial institution that holds shares in ICBC.
Amex holds about 638 million shares in ICBC, or less than 1 per cent of the bank's Hong Kong-listed shares.
Mr Sanjay Jain, head of Asian financials research at Credit Suisse, said: "The sale does not affect ICBC at all, and the overhang will be removed when Goldman disposes of the remaining (ICBC shares), hopefully in one go."
Temasek's financial-services portfolio includes stakes in DBS Group, Indian lender ICICI Bank and Standard Chartered.
Bank of America, Royal Bank of Scotland and UBS are among the foreign banks that have sold large stakes in Chinese banks over the past few years.
Such sales have been an attractive way to raise capital or reduce earnings volatility.
Goldman first bought 4.9 per cent of ICBC for about US$2.6 billion before the 2006 IPO, which was then the world's biggest public offering.
The latest stake purchase comes after Temasek, which manages about US$150 billion in assets, raised about US$800 million since the start of the year in three significant selldowns in its portfolio companies.
This included a 1.4 per cent stake sale in ICICI Bank.
Temasek is also selling its 67.4 per cent stake in Indonesia's Bank Danamon to DBS in exchange for DBS shares, in a deal that is awaiting regulatory approval.
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