All Cyprus banks will remain closed until Thursday, the central bank has announced in a shock statement.
Finance Minister Michael Sarris made the decision on the recommendation of the Central Bank Governor Panicos Demetriades in order to "ensure the smooth functioning of the entire banking system" the statement said on Monday.
Earlier, the authorities said all but two of the country's largest lenders, Laiki and Bank of Cyprus, would reopen on Tuesday morning.
A withdrawal limit from ATMs of 100 euros ($130) a day are expected to continue.
Banks have been closed since March 16 to avert a run on deposits as the country’s politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.
An initial plan that would seize up to 10 percent of people’s bank accounts had spooked depositors and was soundly rejected by politicians.
Nicos Anastasiades, the island nation's president, said late on Monday that Cyprus's bailout deal with the EU was "painful" but the best under the circumstances.
The newly elected conservative president said he had taken the "painful decisions to save the country from bankruptcy" and pledged that Cyprus "would find its feet again".
Anastasiades said his mission during frantic talks with international creditors had been an "extremely difficult task with one sole aim - to achieve the salvation of our country through the consolidation and streamlining of our banking system".
The president said his country will introduce capital restrictions to prevent an outflow of money when its banks reopen this week but the measures will be "very temporary".
"The central bank will implement capital controls on transactions," he said in the address. "I want to assure you that this will be a very temporary measure that will gradually be relaxed."
Earlier in the day, a government spokesman defended the bailout deal amid criticism from the opposition, islanders and Russia, insisting it had stopped a "disorderly" default and exit from the euro.
Christos Stylianides said that the 11th hour deal struck in Brussels after marathon negotiations had drawn a line under 10 days of crippling financial shutdown, albeit at a heavy cost.
Popular Bank, the island's second largest bank, also known as Laiki, will be closed and all deposits below 100,000 euros will be shifted to the Bank of Cyprus, the island's top lender, to create a "good bank".
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise the Bank of Cyprus.
"Finally, Cyprus has ended a period of uncertainty and insecurity for the economy. A disorderly default was avoided, which would have meant leaving the eurozone, with devastating consequences," said Stylianides.
The agreement gives the government 10 billion euros ($13bn) in emergency loans to avert a collapse of the banking system and an eventual exit of Cyprus from the European single currency.
"The important thing is that we have reached an agreement that allows us to kick-start the economy and lay the groundwork for a new beginning," Stylianides, who conceded that the deal was painful, said.
Live Box 201192615204954678
But his defence failed to convince the main island's opposition party, the communist Akel, which had refused to sign a bailout agreement on similar terms while it was in power before Anastasiades' election last month.
A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.
Akel, which holds 19 seats in parliament to the 20 of Anastasiades's Disy party, said the deal would only deepen the crisis, leading to more austerity, higher unemployment, privatisation of public utilities and the closure of many small businesses.
"It is our conviction that the Anastasiades-Eurogroup agreement will be the start of new woes for Cyprus and its people," Akel said.
The European Central Bank announced on Monday that it would continue providing emergency funding to Cypriot banks.
"Today, the governing council decided not to object to the request for provision of Emergency Liquidity Assistance by the Central Bank of Cyprus, in accordance with the prevailing rules," the ECB said in a statement.
Russia softens stance
Meanwhile, Russia has signalled it may soften its stand over extending and easing the terms of its existing 2.5bn euro loan to Cyprus.
Vladimir Putin, the Russian president, has ordered his government to negotiate the restructuring of a bailout loan it granted to Cyprus in 2011.
Dmitry Medvedev, the country's prime minister, earlier criticised the EU bailout deal that will inflict heavy losses on uninsured depositors, including wealthy Russians.
Angela Merkel, the German chancellor, who supported the deal, said: "I am very pleased that a solution was found last night and that we have been able to avoid an insolvency."