Lenihan said legislation to establish the National Asset Management Agency (NAMA) -- which will assume up to 90 billion euros (79 billion pounds) of loans and assets -- will be ready by July and parliament could be recalled from summer recess to enact it.

The crucial discount to be applied to the assets has yet to be decided and the finance minister's comments followed a recent warning from the head of Ireland's debt management office that legal challenges over the scheme's details are likely.

"There are enormous practical difficulties with it and that is why we are taking our time in doing the preparatory work with the banks and in preparing legislation, which we intend to publish in July," Lenihan told state broadcaster RTE.

"We will call back the house over the summer if necessary to enact the legislation."

"It may be (published before parliament rises) but I'm allowing myself the timescale of July because we want to get this right," he said, adding that if the house was recalled for a week, it would have ample time to examine the legislation.

NAMA, announced in April's emergency budget, will force lenders to write off the discount on loans, potentially prompting further capital injections from the state.

The country's two largest banks, Allied Irish Banks and Bank Of Ireland , have already received 3.5 billion euros of state capital, while Anglo Irish Bank was nationalized earlier this year.

Following further newspaper reports on Sunday that Anglo would need a fresh state injection of 3.5 billion euros when it announces half-year results this week, Lenihan admitted that the lenders' losses were "somewhat beyond expectation."

"Liquidating it here and now is just not possible for the government," he added.

(Reporting by Padraic Halpin; Editing by Jan Paschal)