Cash bonuses at the predominantly state-owned RBS will be limited to £2,000 next year, David Cameron told the Commons.
The Prime Minister said the existing £2,000 cap would continue to apply and he also promised to veto proposals to increase the overall pay bill.
His comments came after Labour tabled a parliamentary motion calling on the Government, as the majority shareholder in RBS, to reject any request from the bank for permission to pay bonuses of up to double an employee's annual salary.
Mr Cameron said: "I can confirm today that just as we have had limits on cash bonuses of £2,000 at RBS this year and last year, we will do the same next year as well."
He added: " If there are any proposals to increase the overall pay, that is pay and bonus bill at RBS, at the investment bank, any proposals for that, we will veto it."
Labour leader Ed Miliband said RBS was expected to ask the Government to approve bonuses of over 100% on multimillion-pound salaries.
Although the Prime Minister said the cap on cash bonuses would remain in place, he did not promise to limit payouts in shares.
Mr Cameron said: "We will continue with our plans for RBS that have seen bonuses come down by 85%, that has seen the bonus pool at one third of the level that it was under Labour."
Chancellor George Osborne warned of the dangers of creating a "Fred Goodwin-style situation" in Britain's banks as a result of European Union rules capping bonuses.
Under the EU cap, bonuses of more than 100% of basic salary must be approved by shareholders - in RBS's case, the British taxpayer, represented by the Chancellor.
But the Government is challenging the cap in the courts, and Mr Osborne today warned it would not lead to bankers receiving less money, as financial institutions could be expected to respond by paying higher basic salaries, which he said would be more difficult to claw back if things went wrong.
Answering questions at a conference on EU reform in Westminster, the Chancellor said: "This Government has done more than any to bring the banking system back under control, to regulate banking properly, to ring-fence our retail banks and make sure bankers are properly accountable and if things go wrong the money that they were given can be taken off them.
"These European rules will not lead to bankers being paid less. What they will lead to is a Fred Goodwin-style situation where you will not be able to get money back off bankers when things go wrong.
"That is precisely what we have been trying to get away from in Britain."
Downing Street said that the RBS board had not yet made a proposal on staff bonuses, while RBS stressed it had not made any decision on whether to seek shareholder approval to pay the maximum allowable bonus.
It is in talks with UK Financial Investments - the government body charged with managing taxpayer stakes in banks - and other shareholders about pay and bonus plans for the year ahead.
The row blew up as Mr Miliband prepared to set out new plans for reform of the UK banking system, expected to include a requirement for the "big five" high street banks to sell branches to smaller competitors.
Responding to a BBC report that the opposition leader's proposals in a speech on Friday would include a cap on banks' market share, Labour's Treasury spokesman Chris Leslie told the Radio 4 Today programme: "We have got to give customers more choice. This is about change and reform. The Government have fallen short consistently of rising to the challenge of what needs to be done."
HSBC, Barclays, RBS, Santander and Lloyds last year accounted for 90% of bank customers and total lending, and there is cross-party agreement on the need to boost competition.
The EU bonus cap came into force on January 1, limiting bonuses for all those earning more than a million euros (£830,000) to a year's salary - or a maximum of two years if shareholders approve.
But the new rules will not affect the upcoming round of bonuses set to be handed out for performance in 2013, instead applying to payments from this year onwards.
The majority of European banks are expected to ask shareholders to back bonuses at the higher level, with Barclays already confirming that it will put the plans to vote at its annual meeting at the end of April.
The Treasury lodged legal action in September, arguing that the EU had gone beyond its remit in seeking to regulate bonuses, which it claimed had been decided without proper consultation and with no impact assessment.
A Downing Street source said the total package of pay and bonuses at RBS had halved under the coalition Government, from £3 billion in 2009 to £1.4 billion in 2012.
But a senior Labour source told reporters that the overall number of employees at RBS had fallen by 40,000, and the number of investment bankers by 2,000.
"The Prime Minister keeps referring to the total bonus pool, but the numbers employed in RBS have fallen dramatically since the financial crisis," said the Labour source.
"It's quite clear that they are going to do nothing to rein in these excessive bonuses. It seems to us that they have collapsed in the face of pressure from RBS. Ed wanted to see if we could get an answer from the Prime Minister on what he would do - what these answers showed very clearly is that he isn't going to take any action."
Responding to the Prime Minister's comments, Mr Leslie said: "David Cameron has refused to rule out approving bonuses of up to 200% at RBS. It looks like he and George Osborne would approve such a request at a time when ordinary families face a cost-of-living crisis and bank lending to businesses is falling.
"A cap on total remuneration is a complete red herring because RBS is cutting another 2,000 jobs in its investment bank and many executives were paid bonuses worth more than 100%of their salary last year.
"We need change and reform of our banks, not the business-as-usual approach of David Cameron and George Osborne."