U.S. banks that have received government aid, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury's $1,000 billion plan to revive the financial system, the Financial Times said.

Citigroup was considering whether to take part in the plan as a seller, buyer or manager of the assets, but no decision had yet been taken, the paper said, citing people close to the company.

Goldman and Morgan Stanley have pledged to increase investments in distressed assets, the paper said.

This week, John Mack, Morgan Stanley's chief executive, told staff the bank was considering how to become one of the firms that can buy these assets and package them where your clients will have access to them, according to the paper.

Spencer Bachus, the top Republican on the House financial services committee, told the paper that he would introduce legislation to stop financial institutions gaming the system to reap taxpayer-subsidized windfalls.

Bachus added it would mark a new level of absurdity if financial institutions were colluding to swap assets at inflated prices using taxpayers' dollars, according to the paper.

Citigroup, JPMorgan and Goldman declined to comment to the paper.

The U.S. government's plan, known as the Public-Private Investment Program, gives government help to private investors looking to buy loans and securities from banks.

It's an open program designed to get markets going, a Treasury official told the paper, adding that it is between a bank and their supervisor whether they are healthy enough to acquire assets.

A Citigroup spokesman in Hong Kong was not immediately available for comment, while JPMorgan's Asia-Pacific spokesman did not immediately return an email seeking comment.

A Goldman Sachs spokesman in Hong Kong declined to comment.

A Morgan Stanley spokesman from the company's office in Hong Kong was not immediately available for comment.

(Reporting by Ajay Kamalakaran in Bangalore, Editing by Ian Geoghegan)