Brown condemns Icelandic government

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Councils, police forces, fire services and charities were facing up to potential losses of more than £1 billion, according to some estimates.

Prime Minister Gordon Brown hit out at the Icelandic government for its "totally unacceptable" response to the folding of institutions like Landsbanki and Glitnir.

Threatening legal action, he insisted it was the responsibility of Iceland's authorities to reimburse UK investors who stood to lose their deposits.

While Chancellor Alistair Darling has promised to guarantee the investments of individual British savers, ministers are refusing to do the same for public authorities.

On a visit to Birmingham, Mr Brown said: "This is a problem that has been caused by Iceland. It is totally unacceptable behaviour."

The premier said the Government was trying to freeze the assets of Icelandic banks with branches in the UK, adding: "I think we've got to be clear there is a responsibility on the Icelandic authorities to respond. They are the regulators, they are the supervisors, they are the people responsible for what the Icelandic banks based in Iceland are doing, and we expect them to honour their obligations."

By 6pm on Thursday, the Local Government Association had been contacted by 108 councils who have invested £798.95 million in Icelandic banks.

As well as town halls, police authorities and fire and rescue services have deposited large amounts of money in what until recent weeks have appeared attractive savings accounts with Icelandic institutions.

Charities are now urgently seeking talks with Mr Darling, amid fears that they stand to lose tens of millions more. The Charities Aid Foundation (CAF) said the losses could be "catastrophic" and called on the Government to give full protection for all charity deposits.