UPDATE 4-Millions in AIG bonuses ignite bipartisan fire

* White House, Congress outraged at AIG bonuses

* Contracts binding but questions persist

* AIG names of counterparties who benefited from bailout (Updates with AIG releasing list of counterparties and AIG chief to testify to Congress, final three paragraphs)

By Thomas Ferraro

WASHINGTON, March 15 (Reuters) - President Barack Obama's top advisers and Democratic and Republican congressional leaders voiced outrage on Sunday that insurer American International Group, recipient of a $173 billion taxpayer bailout, is paying $165 million in employee bonuses.

But they agreed it was unclear what, if anything, the government can do to cut the bonuses since the contracts seem legally binding.

Lawmakers said, however, that plenty of questions need to be answered and some AIG officials may need to be ousted. They also said legislation may be needed to avoid a repeat of such action and retain public confidence in federal bailouts.

"We will absolutely do everything possible to make sure that the money we put in there is spent in a way that we think is appropriate," Christina Romer, chair of the White House Council of Economic Advisers, told NBC's "Meet the Press."

Romer and another top Obama adviser, National Economic Council Director Lawrence Summers, said contracts must be honored but the matter at AIG would be examined.

"We are a country of law. There are contracts. The government cannot just abrogate contracts," Summers told ABC's "This Week." Regardless, he said: "Every legal step possible to limit those bonuses is being taken by (Treasury) Secretary (Timothy) Geithner and by the Federal Reserve System."

Senate Republican Leader Mitch McConnell said of the bonuses, "This is an outrage," and that the Obama administration needs to do more.

"We all know that contracts are valid ... but they need to be looked at," McConnell told ABC "This Week."

"Did they (AIG) enter into these contracts knowing full well that ... the taxpayers of the United States were going to be reimbursing their employees? Particularly employees who got them into this mess," McConnell said.

Public outrage at the AIG bonuses was equally apparent on news websites and in blogs.

"This makes me ill," a reader wrote on the New York Times website, voicing the sentiment of many. "Let AIG fail, and then let's see what those executives believe they are entitled" to.

MUST PAY MILLIONS IN BONUSES