UPDATE 2-Ireland to liquidate Anglo Irish in bank debt deal

* Irish central bank chief to present new plan to ECB board

* Legislation could come before parliament within hours

* Government desperate for deal after 18-month negotiation

* Bank's remaining loans to be transferred to NAMA

LONDON/DUBLIN, Feb 6 (Reuters) - Ireland has removed the board of failed Anglo Irish Bank as part of a deal it is seeking with the European Central Bank (ECB) to ease the nation's debt burden, the bank's chairman told Reuters on Wednesday.

Anglo has become a byword for the casino-style lending that obliterated Ireland's financial sector, having cost the state more than any other lender. Three of its former executives, including its former CEO, will go on trial next year on fraud charges.

It was Anglo's collapse that pressured Ireland's government into promising to shore up the nation's banks in late 2008, multiplying the state's debts and sucking it into the euro zone's sovereign debt crisis.

Ireland has been in negotiations with Frankfurt for 18 months over now infamous promissory notes pumped into Anglo. The government sees their rescheduling as crucial to enabling the country to end its EU/IMF bailout on schedule this year.

The ECB rejected Dublin's preferred solution of rescheduling part of its bank bailout bill when its board discussed the plan for the first time last month, EU sources familiar with the talks told Reuters.

However Irish central bank governor Patrick Honohan, the country's representative on the ECB's Governing Council, will put a revised plan to his fellow policymakers on Wednesday evening in Frankfurt, two sources said.

Under the plan, first reported by Reuters, Anglo Irish Bank will be liquidated so that the Irish government no longer has to make 3.1 billion euro annual payments on a 28 billion euro ($38 billion) promissory note used to bail it out.

"The (bank's) board is liquidated as of now, the functions of the board are being taken over by KPMG," said Alan Dukes, a former finance minister and the current chairman of the former Anglo, which has since been renamed IBRC.

The government is desperate to avoid making the politically incendiary annual payments on the note, the next of which is due at the end of March. Some members of parliament have warned that failing to get a deal could sink the two-year old coalition.

'BAD BANK'

A source said the Irish parliament could consider legislation enabling the moves as early as tonight. If agreement is reached, Ireland's finance minister is expected to make a speech in parliament on the issue at around 2100 GMT, another source close to the talks said.

If the ECB signs off for the plan, most of IBRC's balance sheet will pass to the Central Bank of Ireland (CBI) when the scandal-hit bank is liquidated, the source said.

Assets will include a long-term Irish government bond which will be used to replace the current promissory note, meaning that Ireland can make more gradual payments on the debt incurred through Anglo.

Ireland initially wanted the central bank to hold the long-term bond for a minimum of 15 years. The ECB's governing council warned that such a long holding period would effectively be "monetary financing", which is prohibited by EU treaty.

The 15-year clause is now being dropped, a second source told Reuters.

IBRC's remaining loans will be transferred to the state-run National Asset Management Agency (NAMA), the country's 'bad bank' which will pay for them with NAMA bonds, the source familiar with the discussions said.

NAMA was also involved in a temporary solution last year, when Dublin postponed the 2012 promissory note payment as part of a deal in which it issued a 13-year bond.

A spokesman for NAMA declined to comment. The ECB also declined to comment, beyond saying that talks are "ongoing". The Department of Finance also would not comment.

KMPG's Padraic Monaghan has been given responsibility for running IBRC's board said. Staff at IBRC were told of KPMG's appointment by email on Wednesday evening. Kieran Wallace, of the same firm, will be appointed liquidator, two sources confirmed