But a senior politician in the country's ruling party said she expects early elections this year.


About 2,000 demonstrators gathered outside Reykjavik's parliament building late on Wednesday, with some throwing rocks, paving stones, fireworks, shoes and toilet paper, Stefan Eiriksson, the city's police chief, said.

He said police used pepper spray and then tear gas to try to disperse protesters.

"We had to take action to split up the people and try to avoid further damage and injuries to the police,'' he said. "This was our last resort.''

Witnesses said some demonstrators tried to stop others from throwing rocks at police.

On Wednesday, protesters pelted eggs at the car of the prime minister, surrounding the vehicle and banging it with cans.

The limousine was able to drive away after riot police arrived.


The financial crisis has caused the country's currency to plummet, leading to demonstrations by people who are angry at the coalition government's handling of the situation.

Thorgerdur Gunnarsdottir, deputy leader of the centre-right Independence party, told parliament she expected elections this year.

Iceland does not officially have to hold a national election until 2011.

Haarde's office did not comment on Gunnarsdottir's remarks.

The government could fall if the Social Democratic Alliance, partner to Haarde's Independence party, were to withdraw its support.

At a meeting on Wednesday, the party's Reykjavik chapter called on it to sever its alliance with the ruling party and trigger elections by May.

But Haarde, speaking as demonstrators chanted outside the parliament building, said he still had the support of his Social Democrat coalition partner.