AIG, the insurance giant, will have to reimburse the US Government for the hefty bonuses paid to its executives, Timothy Geithner, the Treasury Secretary, said last night.

Mr Geithner said that it was impossible to prevent the $165 million (£119 million) in contractual bonuses from being paid, but that the money would be deducted from the outstanding $30 billion of AIG's bailout of more than $170 billion.

In a letter to Nancy Pelosi, the House Speaker, he said that President Obama shared the public's outrage over the bonuses paid to executives at the firm that was close to meltdown before last year's government rescue.

Mr Geithner also said that he wanted to accelerate the winding down of AIG, which is largely controlled by the Government.

"We will continue our aggressive efforts to resolve the future status of AIG in a manner that will reduce the systemic risks to our financial system while minimising losses to taxpayers," he said.

"And we will explore any and all responsible ways to accelerate this wind-down process."

On the bonuses, Mr Geithner said that the Department of Justice was reviewing ways of recouping the money. If they violated provisions of the economic recovery plan passed last year, the Government would negotiate with the company and employees on a payback, he said.

Future pay would be subject to strict limits imposed in new legislation covering bailed-out firms.

Lawmakers said that they were looking at punitive tax measures to reclaim the bonuses paid largely to the London-based financial products traders who brought ruin to AIG and helped to ignite the global financial crisis.

Mr Geithner said he was informed of the bonuses last week by his staff and had registered "strong objections".

But he said that AIG's chief executive Edward Liddy, who was installed after the bailout last year, told him the payments were negotiated in April 2008 and the comapny was "contractually committed".

Mr Geithner said the Treasury Department's lawyers "agreed, in consultation with outside counsel, that it would be legally difficult to prevent these contractually mandated payments".

But he pointed out that under legislation the Government may have the right to review compensation to the 20 most highly paid executives at firms getting public funds.

If the payments were inconsistent with the law or contrary to the public interest, the Government may have a right to recoup the funds.

Mr Geithner defended Mr Liddy's role in the matter, saying he was put in place last year "at the request of the Government to help rehabilitate the company and repay taxpayer funds".

Mr Liddy is expected to receive a mauling about the bonuses today when he is due to appear before the House of Representatives subcommittee on capital markets.

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