The directors of The Royal Bank of Scotland are threatening to quit if the Treasury blocks plans to pay out an estimated £1.5 billion in bonuses to staff in its investment arm, it was reported today.

RBS board members were reportedly advised to resign if they lose the power to run the largely state-owned bank for the benefit of shareholders.

Chancellor Alistair Darling signalled he is prepared to veto the size of the RBS bonus pool, which is around 50% bigger than last year.

News of the row came as City Minister Lord Myners warned that at least 5,000 UK bankers will earn more than £1 million this year unless action is taken.

He called on major shareholding institutions to tackle the issue before it was too late.

As part of the terms of its latest deal to insure bad debts, the Government wants to dictate both the “quantum and shape” of the payouts at RBS for 2009.

The bank, which will be 84% state-owned under the terms of the Asset Protection Scheme (APS), will now have to agree the size of this year’s payouts with UK Financial Investments (UKFI), the body set up to manage the public stakes in banks.

A Treasury spokesman said: “As a major shareholder UKFI needs to be satisfied that RBS’s approach to remuneration is in keeping with the FSA code of practice.

“We expect other institutional shareholders will be equally concerned to ensure remuneration practices do not pose a risk to the stability of the organisation.”

An RBS spokesman said: “Our agreed business plan requires us to operate commercially in competitive markets and this plan underpins the prospects of recovering value for taxpayers and other shareholders.

“UKFI, as with our other shareholders, has to date engaged with us positively in reiterating this goal and we expect that to continue.”