Newham Council has reached a settlement with the Royal Bank of Scotland over £150million of “risky” loans.

In February the local authority filed a high court claim against the bank over six lender option borrower options (Lobo) loans taken out by the borough before 2010.

Mayor Rokhsana Fiaz said the council had now "struck a deal" with the bank that she claimed would save up to £143million in interest repayments.

"I made a promise last year that I would clean up the council's budget," she said.

"A key element of that was to address the scourge of risky Lobo loans taken out under the previous administration.

"Over the past ten years that the loans have been in place, it's cost us an extra £31million in interest payments.

"That's money that should have been spent on residents. The deal that we've successfully nailed down means that we'll be saving up to £143million for Newham residents, which is a successful resolution of this litigation."

An RBS spokesman said the bank "did not recognise the figures being quoted" but were "happy to have commercially agreed pricing with Newham council for early repayment of their loans."

Between 2004 and 2010 councils across the UK took out billions of pounds in Lobo loans, which were complex and had variable interest rates that could be changed by the lender.

Leeds, Greater Manchester, Newcastle, North East Lincolnshire, Nottingham, Oldham and Sheffield are collectively suing Barclays over Lobos worth more than £500m.

The councils allege that because of Barclays' involvement in the London interbank offered rate scandal, known as the Libor scandal, the interest rates initially issued on the loans were illegally set.

Newham is thought to be the country's most enthusiastic borrower of Lobos, withdrawing some £563 million in total.

The majority are believed to be with Barclays and the Town Hall is pursuing legal action against the bank separately.

Barclays has been contacted for comment.