Sept 19 (Reuters) - Canadian legal software maker Dye & Durham (D&D) cut a fifth from an already-agreed buyout price for Australian rival Link Administration Holdings due to regulatory concerns, putting the long-running deal talks into doubt.

A month after the target company's shareholders backed an already-lowered A$2.47 billion ($1.66 billion) cash sale to D&D, the Canadians said they now wanted to pay just A$1.95 billion, up front, citing a regulator probe in Britain which may leave Link forced to pay 306 million pounds ($349.91 million) in redress.

Link said it could not recommend the latest version of the offer, and that it planned to "evaluate alternatives for the business" if it fell through entirely. Link shares were down 3.5% in morning trading, against a flat overall market.

The late change from D&D, and Link's response, underscore the growing problem of execution risk in Australian mergers and acquisitions in a year when share market gyrations have battered company valuations and regulators are taking an increasingly hardline approach.

A week earlier, one of Australia's biggest private equity buyouts hit a stalemate when buyout specialist KKR withdrew an indicative offer for hospital operator Ramsay Health Care when the target posted a hefty profit decline.

The Link buyout hit turbulence when Britain's Financial Conduct Authority (FCA) said a local unit of the Australian firm may have to compensate more than 300,000 investors who were exposed to a collapsed fund that it had been managing.

In a statement, D&D said it wanted to cut the cash offer price by the maximum amount of compensation that it would have to pay the fund's investors, then pay the rest later if there was no payout.

"Our revised proposal ensures Link Group shareholders receive the same economic value as our earlier offer, while taking into account the impact of the potential ... liability," said D&D CEO Matthew Proud.

"In fact, our proposal caps the amount of that liability ... and helps Link Group avoid what could be years of costly litigation with an unknown outcome and significant and ongoing reputational damage." ($1 = 1.4870 Australian dollars) ($1 = 0.8745 pounds) (Reporting by Byron Kaye in Sydney and Sameer Manekar in Bengaluru; Editing by Richard Chang and Lincoln Feast.)