DAVIS, California (Reuters) - University of California officials have agreed to pay $1 million to settle a lawsuit over a pepper-spraying incident last year that came to symbolize law enforcement aggression against anti-Wall Street protesters, attorneys said on Wednesday.

Video of the confrontation, which showed seated student protesters being pepper-sprayed by campus police at the University of California campus at Davis, was replayed widely on television and the Internet, sparking outrage among faculty and activists.

Under the terms of the settlement filed in court on Wednesday, each of the 21 students and recent graduates from the campus who sued University of California regents over the November 2011 incident will get $30,000 and a personal letter of apology from UC Davis Chancellor Linda Katehi.

The deal also includes $250,000 for plaintiffs' attorney fees.

"I want the university and the police to understand what they did wrong," UC Davis undergraduate Ian Lee said in a statement.

"I was demonstrating because of rising tuition hikes and privatization of the university. Then we faced police brutality in response. I felt like the university silenced me," he said.

Lee later told a crowd at a press conference on the UC Davis campus that he would use his settlement money to pay for tuition, and that others were planning to do the same.

The pepper-sprayed students reported panic attacks, trauma, and falling grades after the incident, according to the American Civil Liberties Union of Northern California, which represented the plaintiffs.

The incident led the university to replace the campus police chief and briefly thrust the normally quiet campus near the state capital Sacramento to the forefront of national anti-Wall Street protests.

A scathing 190-page report in April on the UC Davis confrontation criticized officers for using pepper spray to break up a peaceful demonstration and accused school administrators of making poor decisions at nearly every point leading to the incident.

"We believe the proposed settlement is in the best interests of the University of California," said Steve Montiel, spokesman for the UC Office of the President. "We have been moving forward for some time," he added, noting the school system's own review after incidents on its Davis and Berkeley campuses.

In November UC Berkeley police struck demonstrators with batons during a protest as officers tried to remove an encampment at the height of the Occupy Wall Street movement.

The Davis settlement, which needs court approval, also sets aside a $100,000 pool to pay up to $20,000 each for anyone who joins a class action lawsuit and can prove they were either arrested or directly pepper-sprayed, Montiel said.

"It looks from examining the footage that there may be another five, perhaps as many as 10, additional victims who might want to participate and file claims," Mark Merin, a civil rights attorney, said at the press conference.

The local district attorney's office said last week that officers involved in the incident will not face criminal charges.