WELLINGTON: The four largest banks in New Zealand have agreed to pay 2.2 billion dollars (1.6 billion US) in disputed taxes in a pre-Christmas boost to the government's coffers, officials said.

The four Australian-owned banks said late Wednesday they would pay what is believed to be New Zealand's largest ever tax settlement after a five-year legal battle with the Inland Revenue Department.

The department had won two court cases against the BNZ and Westpac banks earlier this year over claims worth hundreds of millions of dollars, although the banks had intended to appeal.

Two more cases were pending against the ANZ and ASB banks but all the legal action has been dropped after the four banks agreed to pay 80 percent of the amounts claimed by the state.

Under the settlement, Westpac will pay about 865 million dollars, BNZ -- owned by National Australia Bank -- about 658 million dollars, ANZ nearly 414 million dollars and ASB -- owned by Commonwealth Bank of Australia -- 264 million dollars.

The case revolved around cross-border transactions used by foreign-owned New Zealand banks in the late 1990s and early this decade to reduce their local tax payments.

Inland Revenue Commissioner Robert Russell, and Solicitor-General David Collins welcomed the legal victory.

"We believe this sends a strong signal to companies operating in New Zealand -- like all taxpayers they must meet their obligations."

The banks said they had believed at the time of the transactions that they were legal.

"Simply put; we acted in good faith at the time," BNZ chief executive Andrew Thorburn said.

"Now it is time to settle so that we can move on and move forward."