About 60 per cent of Icelandic voters rejected a deal to repay debts to Britain and The Netherlands [AFP]

Iceland has said it will start paying compensation to Britain and The Netherlands for losses suffered due to the country's failed Icesave online bank.

Johanna Sigurdardottir, Iceland's prime minister, said on Thursday the payments "will start this summer".

"These payments will largely give The Netherlands and Britain the means to cover the compensation given by the authorities to savers in their countries," she said in comments published in the Dutch De Volkskrant daily newspaper.

On Wednesday the government narrowly survived a no-confidence vote as the ruling coalition made up of the Social Democratic Alliance and the Left Green Movement held firm, winning by 32-30.

It was the first test for the government following a weekend referendum in which voters rejected a proposed deal to repay Britain and The Netherlands over $5bn for compensating their citizens who lost savings in the collapse of Icesave.

Last week Iceland's government said it has "no problem" repaying its debts as litigation loomed.

"Iceland's reserves are more than enough to cover all the payments in the coming years," Steingrimur Sigfusson, Iceland's finance minister, had said.

In Sunday's referendum nearly 60 per cent of Icelandic voters rejected a government- and parliament-backed plan to refund €3.9bn ($5.6bn) to Britain and The Netherlands for money they spent on compensating 340,000 of their citizens who lost money on Icesave.

Icesave went under at the height of the global financial crisis in 2008.

Source: Agencies