LONDON (Reuters) - Part-nationalised Royal Bank of Scotland will pay out only the legal minimum in bonuses for last year, totalling £175 million ($249 million), as the government sought to quell public anger over payouts for bankers.

Finance minister Alistair Darling said RBS would only pay bonuses it was contractually obliged to. The bank had been considering paying out £1 billion in bonuses, according to media reports, which prompted a public and political backlash.

"They've cut down the payments they are making to the absolute legal minimum," Darling said.

RBS, which is 70 percent owned by the government after being rescued with £20 billion of taxpayer cash, said in a statement no bonuses or pay increases would be made to staff associated with the losses suffered last year.

Darling said future bonuses will be restricted and can be recouped if people's performance falls short of the mark.

Bankers who are essential to RBS's recovery and who might leave will receive a deferred non-cash award for 2008, RBS said. This will be paid in three equal annual instalments beginning in June 2010.

It plans to follow a similar structure for 2009 and said it is undertaking a fundamental review of its future remuneration.

"A fundamental reform to pay and reward is needed to reflect the reality of the situation the company is in," said Philip Hampton, RBS chairman. "The board is satisfied that this approach will be seen by most reasonable observers to have balanced difficult conflicting issues."

Bankers are facing a huge public backlash over their role in the credit crisis and the multi-million pound bonuses they rewarded themselves with in the run-up to it.

The government has come under heavy pressure to curb the bonus culture, especially as taxpayers now own a large chunk of the banking sector after government bailouts of some of the biggest financial institutions.

That pressure has been greatest on banks that have taken taxpayer cash, notably RBS and Lloyds Banking Group.