|Partial official results showed 58 per cent voted against the plan to repay debts to Britain and Netherlands [EPA]
Voters in Iceland have rejected--for the second time-- a plan to repay debts to Britain and the Netherlands from a bank crash, partial referendum results showed.
Johanna Sigurdardottir, Iceland's prime minister, said economic and political chaos could follow, after near-complete results were quoted on Sunday by RUV public radio.
"The worst option was chosen. The vote has split the nation in two," the premier told state television, saying it was fairly clear the "no" side had won.
Icelanders say citizens should not bail out irresponsible bankers who were blamed for the collapse of the Icesave bank and the loss of hundreds of millions of dollars.
With around 85,000 votes in the referendum counted, official figures showed 58 per cent had voted against the plan compared with 42 per cent in favour, the television said.
Iceland has 230,000 voters but the turnout was not immediately available.
The prime minister, who had predicted that a no vote would cause economic uncertainty for at least a year or two, did not say whether her centre-left coalition government planned to resign.
"We must do all we can to prevent political and economic chaos as a result of this outcome," she said.
The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online Icesave accounts owned by Landsbanki, one of three Icelandic banks that collapsed in late 2008.
Icelandic lawmakers in February backed the repayment plan agreed with creditors in December, but the president refused to sign the bill, triggering the referendum.
In March 2010, Icelanders rejected an earlier Icesave repayment blueprint in a referendum.
The "no" side warned that the agreement would put "an incredible financial burden on Icelanders", insisting "there never was any legal obligation for Icelandic citizens to shoulder the losses of a private bank."
"I know this will probably hurt us internationally, but it is worth taking a stand," Thorgerdun Asgeirsdottir, a 28-year-old barista said after casting a "no" vote at the Reykjavik city hall.
Svanhvit Ingibergs, 33, who works at a rest home, said: "I had no part in causing those debts, and I don't want our children to risk having to pay them. It would be better to settle this in a court."
The dispute over repayment has soured relations between the small North Atlantic island nation and the two other countries.
'End of the road'
It may now be solved in a European court rather than in bilateral talks, a solution that may take several years and that some economists say that it would be much costlier.
"It is clear that we have reached the end of the negotiation road," Steingrimur Sigfusson, Iceland's finance minister told television.
Sigurdardottir said Iceland would now defend its case before the court of the European trade body overseeing Iceland's cooperation with the EU, the EFTA Surveillance Authority (ESA).
In a first stage in legal proceedings last year, ESA said that Iceland should pay compensation to Icesave depositors.
Danny Alexander, Britain's chief secretary to the treasury said on Sunday he was disappointed that Icelanders had again rejected an "Icesave" debt deal.
"It is obviously disappointing that it seems that the people of Iceland have rejected what was a negotiated settlement," Alexander told BBC television.
"Of course we respect the will of the Icelandic people in this matter and we are going to have to now go and talk to the international partners with whom we work, not least the government of the Netherlands.
"It now looks like this process will end up in the courts," he said.
Policymakers and economists have said solving the Icesave issue would help Iceland, whose economy fell into deep recession after its banks failed, get back into foreign credit markets to fund itself.
That is a condition for it to remove controls on capital flows it imposed in 2008 to stabilise a tumbling currency.
The controls have left an estimated equivalent to a quarter of Iceland's gross domestic product in the hands of foreign investors, many of whom are expected to want to pull out when controls are lifted.
Ratings agencies follow the vote closely. Moody's has said it may lower its credit rating on Iceland in case of a "no".