A £350m mystery gift to the nation intended to "pay off the national debt" cannot be touched because of the bizarre set of conditions under which it was bequeathed almost a century ago.

The anonymous donation of £500,000 was made in 1928 to help the Government pay off its debt, but came with a strict stipulation that it could only be used to reduce the national debt to zero.

While the mystery fund has grown by up to £10m a year, the parlous state of the nation's finances means national debt exceeds £121bn, meaning the fund must stand untouched.

In the meantime, the fund, known as The National Fund and managed by Barclays, is likely to grow and grow. It increased in value by £12m in 2012, and is now one of the UK's largest charities.

Barclays has been trying for four years to get permission to use the money to make charitable grants or hand it over to the Treasury, but any change would require court approval.

A spokesman for Barclays said: "We've been working ever since we became the trustee to change the original objects, which say the funds can be used only to pay off the entire national debt.

"We are working with the Charity Commission and the attorney general's office to look at how best to take the fund forward."

The anonymous donor is believed to have left his gift in response to a call from the then prime minister, Stanley Baldwin, who wrote a letter to the Financial Times appealing for contributions to help pay off the national debt.

In 1919, as Baldwin wrote, that figure stood at 140% of UK GDP. By 1928, when the donation was made, the debt had reached 160% of GDP.

The donor is thought to have believed his gift would grow sufficiently to pay off the debt in its entirety.

A spokesman for the attorney general's office said: "There has been correspondence between the Charity Commission, the trustees and ourselves over the National Fund.

"We are looking at a number of options for the future of the Fund, consistent with its object of extinguishing or reducing the national debt.

"It would not be right to comment further whilst this process continues."

The news emerged a week after the Tories and Liberal Democrats returned a £520,000 donation from former nurse Joan Edwards amid confusion over whether she had left the money to the state or to political parties.