The British company said on Friday it will sell its majority shareholding in the business to the Singlife consortium, which includes alternative asset firm TPG, Japanese insurer Sumitomo Life and other existing Singlife shareholders.
Promising to shake up the organisation after she took over in July, new CEO Amanda Blanc pledged to reduce its operations in Asia and Europe.
Analysts have said the insurer is operating in too many countries and sectors, and its shares have lagged rivals.
The stock closed 5% higher at 303.2 pence on Friday, as investors welcomed the news.
"The sale of Aviva Singapore is a significant first step in our new strategy to bring greater focus to Aviva's portfolio," said Blanc, who has been looking to pivot Aviva away from Asia, where some global players have struggled with competition.
The deal, one of the biggest in insurance in Southeast Asia, comes at a time when Singlife has been looking to expand in the region.
TPG will become the largest shareholder in the new group, which will initially be branded as Aviva Singlife in Singapore, with a 35% stake. Aviva will retain a 25% equity stake, with another 20% going to Sumitomo.
The rest will be held by other investors in Singlife, which started operations in Singapore in 2017, and has snapped up customers with its digital offerings.
"We believe this constitutes exceptional value creation for the group (Aviva) and represents clear delivery from the new CEO Amanda Blanc on her promise for decisive action," Jefferies analysts said.
The deal also consists of S$2 billion in cash and marketable securities, and S$250 million in vendor finance notes, Aviva said.
($1 = 1.3664 Singapore dollars)
By Tanishaa Nadkar and Pushkala Aripaka