Cash bonuses at the Royal Bank of Scotland (RBS) will be limited to £2,000 ($3,284) next year, Britain's Prime Minister David Cameron told Parliament on Tuesday.
Cameron also said he would reject any plans by the 81 percent taxpayer-owned bank to hike its overall pay and bonus bill.
The move comes after the opposition Labour Party put pressure on the government to block any attempt by RBS to pay its bankers bonuses of more than twice their annual salary.
The bank is reportedly planning to use a European Union (EU) rule allowing it to pay out bonuses of twice an employee's salary, providing the move is approved by shareholders.
An RBS spokesperson told CNBC that general discussions about bonuses were taking place with shareholders and U.K. Financial Investments -- the body in charge of managing the government's stakes in bailed-out banks.
"No decisions have been taken; we are consulting with our shareholders in the normal way," RBS said in a emailed statement.