Cyprus has become the fifth eurozone country to request financial aid from its partners in the European currency union as it struggles to shore up its banks, which took heavy losses on Greek debt.
The island nation's government said in a terse statement on Monday that it required assistance following "negative spillover effects through its financial sector, due to its large exposure in the Greek economy".
Stefanos Stefanou, government spokesman, would not say how much Cyprus would ask from the European bailout fund, saying that the amount would be subject to negotiations in the coming days.
The 27 leaders of the European Union will meet in Brussels on Thursday.
Stefanou said that despite its demand for European aid, the Cypriot government would continue negotiations for a possible loan from a country outside the EU, such as Russia or China. Cyprus has been surviving off a Russian loan so far this year.
"One doesn't preclude the other," Stefanou told the Associated Press news agency. "Our efforts to secure a bilateral loan will continue."
Cyprus is struggling to find about €1.8bn ($2.26bn) - or about 10 per cent of its gross domestic product - by a June 30 deadline to recapitalise its second largest lender, Cyprus Popular Bank.
The lender is the most heavily exposed of the country's banks to Greek government debt, which lost most of its value this year in a writedown.
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Over the past weeks it became clear that the bank would not find the money from the private sector and would need to get it from the government, itself strapped for cash and unable to raise money in bond markets, where its borrowing rates are too high.
Earlier on Monday, ratings agency Fitch became the third agency to downgrade Cyprus' credit rating to junk status, estimating that the island will need another €4 billion ($5bn) to recapitalise its banking sector.
It cited the banks' exposure to Greek debt as well as a rise in bad loans over the last year as the Cypriot economy has shrunk and unemployment has risen to record levels.
In another development on Monday, credit rating agency Moody's hit 28 Spanish banks with new credit downgrades, as Madrid formally requested a rescue loan of up to 100bn euros ($125bn) for the banking sector from its eurozone partners.
Moody's said the banks face rising losses from commercial real estate loans and that Madrid's own lowered credit grade also contributed to the rating cuts.
Madrid's lower creditworthiness "not only affects the government's ability to support the banks, but also weighs on banks' stand-alone credit profiles," Moody's said.
Though a formality, the request came at a key moment in the eurozone crisis after debt markets sent Spanish and Italian borrowing rates rising and raised concerns for the future of the currency union itself.
A full-blown bailout for Spain, the fourth-largest economy in the eurozone, would dwarf the rescues of Ireland, Greece and Portugal and strain the resources of the bloc to the limit.
There was also increasing uncertainty about the new Greek government, with the incoming finance minister resigning over health reasons and Antonis Samaras, the prime minister, recovering from eye surgery - with a review of its bailout programme delayed.
Samaras accepted the resignation of Vassilis Rapanos only hours after being discharged from another hospital himself, following treatment to repair a detached retina over the weekend.
Al Jazeera's John Psaropoulos, reporting from Athens, said: "The agenda, as set out by this conservative-led government, is going to charge the next finance minister - whoever that now will be - with going to Brussels and defending a two-year extension of the bailout period to the end of 2016, which may require another $25bn worth of EU money."
He said Greece would be "asking the EU to forgive the toughest stipulation of the bailout loan terms - dismissing 150,000 public sector workers that the public payroll can no longer support.
"On the Greek side, there is going to be opposition to such ideas as continuing the privatisation programme. You can count on strong opposition from radical left-wing Syriza party, which has now 27 per cent of the vote."