This is really quite difficult without seeing the Bike. Here is what I would try given AndyM says default on ABS is normal brakes.
Remove the pin that connects the master cylinder rod to the brake pedal and disconnect. Does the pedal move really freely?
If yes, reconnect the rod and remove the rear caliper and pads. Pump the pedal GENTLY. Do the pistons in the caliper move easily. You should see them 'pulse' a little.?
If no, put the caliper back on the bike and undo the bleed nipple, depress the lever to the bottom of its stroke and hold down. Tighten the nipple. Did fluid come out of the nipple? If no, repeat several times. Hopefully it will after a few tries. If it does come out, keep repeating and topping up the reservoir until the fluid coming out of the nipple is clear. This will have changed the old fluid. Remove the caliper and pads again and check the pistons are moving. Look for the 'pulsing in and out slightly. Do this GENTLY. If there is now fluid at the nipple and the pistons don't move they are seized and the caliper will need to be stripped.
If you now have fluid at the rear and the pistons in the caliper are moving freely pump the pedal several times and check whether the brakes still lock on. If they do then the following is worth a try as I've come across the following 3 times(although it means letting all the fluid out again - I hate brake issues!).
Remove the rear master cylinder and reservoir. Remove the master cylinder piston. Where the hose from the reservoir goes into the master cylinder there is a circular plastic 'bung'. Carefully prise this out and underneath you will see 2 holes. One is perhaps 2mm dia and the other is a pin hole. The pinhole is what releases the pressure once you take your foot off the brake. If the fluid hasn't been changed in the life of the bike this can become blocked and does not allow pressure release resulting in a build up which then locks the brake on. This MAY be your problem as you say when you crack the banjo bolt on top of the master cylinder the brake lever then moves. I have VERY CAREFULLY pushed a sewing needle through this hole (using it like a drill) until you can see the end of the needle in the bore of the master cylinder. Reassemble, re bleed (I know this is easier to type than to do on a Dry system) and it should be fine. It will at least have eliminated everything other than the ABS and will only have cost you time and a bit of fluid.
I don't think I've missed a stage but if I have, someone cleverer than me wll be along to put us both right!
Good Luck with it.