Iceland's voters have resoundingly rejected a $5.3-billion-US plan to pay off Britain and the Netherlands for debts spawned by the collapse of an Icelandic internet bank, initial results indicate.

Results returned from around 74,150 ballots counted so far in a country of about 320,000 showed that 93 per cent of voters said "no" in Saturday's referendum, compared with 1.6 per cent who said "yes."

Voters were considering whether to approve a deal that outlines the payment of $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid out to around 340,000 nationals as compensation after the Icesave internet bank collapsed.

The vote is indicative of how angry many Icelanders are as the tiny island country struggles to recover from a deep recession.

The global financial crisis wreaked political and economic havoc on Iceland as its banks collapsed within the space of a week in October 2008 and its currency, the krona, plummeted. The Icelandic government fell as a result of the meltdown.

The debt owed to Britain and the Netherlands is a relatively small sum when compared with the amounts spent to rescue other victims of the global meltdown — $182.5 billion was paid out to keep U.S. insurance giant American International Group Inc. alive — but many taxpayers in the country of just 320,000 say they can't afford to pay it.

The deal would require each person to pay around $135 US a month for eight years — the equivalent of a quarter of an average four-member family's salary.

Needed for recovery

Failure to repay the loans would jeopardize Iceland's credit ratings, making it harder to access much-needed funding to fuel an economic recovery.

Unemployment has surged since the crisis began, to about nine per cent in January, and inflation is running at about seven per cent annually, while the island's economy continues to shrink.

Britain and the Netherlands have been pushing hard for repayment and there have been fears that they will take a hard-line stance on Iceland's application to join the EU and refuse to approve the start of accession talks until an Icesave deal is signed into law.