Iceland is facing economic and political chaos now that voters have for the second time rejected a deal to compensate victims of the Icesave fiasco.

The internet bank, part of the now bankrupt Landsbanki, left behind huge debts in Great Britain and the Netherlands where it was popular with both private individuals and local councils.

Under the terms of the agreement, Iceland would pay 3.8 billion euros in compensation by 2046. 

In a television interview Prime Minister Johanna Sigurdardottir commented: "the worst option has been chosen".

Icelandic state television reports that with 85,000 votes counted the outcome is 42 percent in favour of the deal and 58 percent against. Around 230,000 people are registered to vote. It is not clear what the turnout was for the referendum.

In March 2010, a previous agreement was rejected by 93 percent of Icelandic voters.

(imm)