Iceland's leftist interim government has taken an early lead in the first general election held after the failure of the country's banks.

The pro-EU Social Democratic Party was given 31.9 per cent of votes, and its junior coalition partner, the Left Green Movement, was seen with 23.3 per cent, according to estimates from the electoral committee.

If the Social Democrat/Left-Green alliance win, it will mark  the first time centre-left parties have held such a strong position in Iceland.

About 228,000 people were eligible to cast their ballot in Saturday's elections.

The previous government fell in January, when protesters took to the streets after the country's three main banks buckled under huge debts run up in order to fund their overseas expansion into financial services.

The ensuing economic crisis saw the value of Iceland's currency plummet and the government, then head by the Independence Party, agreed to a $10bn rescue package led by the International Monetary Fund (IMF).

The protests pushed the government to resign and the left-wing Social Democrats formed a caretaker government in coalition with the Left-Green party and called the early election.

Economic turmoil

Unemployment and inflation have spiralled in Iceland, and the IMF has predicted that the economy will shrink by about 10 per cent in 2009 - that would be Iceland's biggest slump since it won full independence from Denmark in 1944.

A result in line with the polls would leave Sigurdardottir as prime minister, although more votes for the Left-Green party could give Steingrimur Sigfusson, its leader,  leverage to claim the premiership.

If elected, the two parties will need to bridge their differences over joining the European Union.

The Left-Greens are opposed to joining the bloc, while Sigurdardottir supports joining the EU and adopting the euro.

"EU membership application is a priority issue for the Social Democrats," she said on Friday. "It is necessary to achieve stability."

Stiff challenges

Like many other voters, Einar Sigurdsson, an internet entrepreneur, told Al Jazeera that he would be voting for the Social Democrats.

"The Social Democrats have the strategy that I like the most - they will go to the European Union. I think by doing that we will send a signal to the world that we will play with the international community," he said.

"We will also then going to be able to change our currency, and our currency is what has been killing us - it is like gambling today with the Icelandic krona, instead of doing business."

Iceland's next government will also face the issues of how to cut budget spending and raise revenues, as well as how to tackle the country's surging unemployment.

A party needs five per cent of the vote to be represented in the 63-seat parliament, the Althingi.

The final results of the election are not due until early on Sunday.