LONDON, JAN. 22 -- Britain said today that it will compensate Lithuania, Latvia and Estonia for about $160 million in gold the three Baltic states had on deposit here when they were incorporated into the Soviet Union in 1940.

The decision comes as a timely boost for the cash-strapped republics, whose independence from Moscow was recognized by Britain and dozens of other other countries last August.

Prime Minister John Major, speaking to reporters after a meeting with Lithuanian President Vytautas Landsbergis, said their two countries had agreed to abandon all mutual claims involving the gold deposits, which left "the diplomatic, economic slate entirely clean."

The three republics -- which were independent between the two world wars -- had about 14 tons of gold on deposit in the Bank of England when the Soviet Union annexed them early in World War II. Britain refused to acknowledge Soviet claims to the gold but sold it for $10.4 million in 1967, using most of the proceeds to meet claims by Britons for assets lost in the Baltic states. Britain also gave the Soviet government $900,000 from the proceeds.

A government official said the compensation due Lithuania is $33.2 million, Estonia $54.4 million and Latvia $74 million. Major said Landsbergis elected to take payment in gold and to redeposit it with the Bank of England.