The Scottish Football Association (SFA) have confirmed they have agreed compensation with Rangers following the departure of national team manager Walter Smith to Ibrox.

The SFA had threatened legal action against both Rangers and Smith after the veteran boss resigned from his post to return to the Glasgow club last week.

However, a settlement — believed to be £400,000 — has been agreed between the SFA and Rangers, meaning no further action will be taken.

Smith enjoyed a successful spell as national team coach, taking Scotland to the top of a Euro 2008 qualifying group, which also includes World Cup finalists France and Italy.

The football governing body are now in the process of searching for a new national team coach ahead of European Championship qualifiers against Georgia and Italy in March.

Alex McLeish, Tommy Burns and Gary McAllister have emerged as the front-runners for the job.

"It's a short-list, that's all I'm prepared to say,"  SFA chief executive David Taylor told Sky Sports News today.

But the SFA chief did confirm the new national team manager will be a Scot.

Taylor added: "Yes, I can confirm that at this stage.

"We said earlier that there was likely to be a preference to go for a Scottish manager at this point.

"That is what we have done."