Voters in Iceland rejected a government-backed deal to repay Britain and the Netherlands for their citizens’ €3.5bn worth of deposits in a failed online bank, referendum results showed – sending the dispute to an international court and plunging the economically fragile country into new uncertainty.

ICELAND is heading for economic and political chaos, according to the country’s prime minister, after a plan to repay €3.45bn to Britain and the Netherlands was rejected for a second time.

It seems the decision by Icelandic voters not to pay billions of euro in compensation to Britain and the Netherlands may end up in the courts.

The Government is set to resort to legal action to recoup billions of pounds paid out to cover the deposits of British savers in collapsed Icelandic banks, the Chief Secretary to the Treasury signalled today.

Voters in Iceland have rejected a government-approved deal to repay Britain and the Netherlands $5bn for their citizens’ deposits in the failed online bank Icesave.

Icelanders are voting on whether to approve a deal to repay Britain and the Netherlands for their citizens’ deposits in the failed online bank Icesave, with the result too close to call.

Icelandic President Olafur Grimsson has said he would put a new deal aimed at solving a dispute with Britain and The Netherlands over a £3bn (€3.56bn) repayment to a public vote.

Iceland’s MPs have approved the repayment of £2.3bn (€2.7bn) to Britain, potentially ending a long-running saga that caused political as well as financial friction.

Britain and Iceland have resumed talks aimed at settling a £2.3bn (€2.78bn) dispute over the collapsed Icesave bank, it was disclosed tonight.

Defiant Icelandic voters have resoundingly rejected a €3.9bn plan to pay off Britain and the Netherlands for debts spawned by the collapse of internet bank Icesave, according to initial results today.

Angry Icelanders went out to vote today determined to give the government a bloody nose over plans to use €4bn of taxpayers' money to pay Britain and The Netherlands for lost deposits when a major bank collapsed.

Iceland’s government is facing a massive public backlash against the use of taxpayers’ money to pay back Britain following the collapse of the country’s banks.

Iceland has walked out of talks with the UK over the repayment of £2.3bn worth of debts.

Iceland is pressing Britain and The Netherlands to renegotiate $5.7bn (€3.96bn) owed for lost bank deposits.

Iceland's leader said the country would "honour its obligations" over the £2.3bn (€2.55bn) owed to Britain for lost savings.

Iceland’s president today refused to sign into a law a bill to compensate Britain and The Netherlands for losses from the collapse of an internet savings bank.

Iceland has agreed to repay Britain and the Netherlands $5.7bn (€3.82bn) it borrowed to compensate savers who lost funds in the collapse of an Icelandic internet bank, the Reykjavik government said.

Iceland decided today to repay Britain and the Netherlands the billions it borrowed to compensate savers in those countries who lost funds in the collapse of an Icelandic internet bank last year.

Britain has secured agreement from the Icelandic authorities to repay the £2.3bn (€2.6bn) paid out by the British government in compensation to UK depositors in the failed Icesave bank, the UK Treasury said today.

Iceland’s prime minister offered government guarantees on Icesave savings deposits in Iceland and Holland of nearly €20,500 on each account.

The financial crisis engulfing Iceland showed no sign of easing today.

Gordon Brown hailed the British government’s £50bn (€64bn) bank bail-out plan today, saying it should restore “confidence and trust” to the financial system.

Royal Bank of Scotland shares plunged nearly 40% to a 15-year low today as speculation mounted over an imminent taxpayer-funded rescue of Britain’s banks.