Iceland's prime minister urges EU members not to link the disputed payout deal for lost Icesave bank savings.

AFP - Iceland's prime minister urged EU members on Thursday not to link the disputed payout deal for lost Icesave bank savings and the IMF aid promised to the country after its economy collapsed.

Iceland's parliament narrowly approved on December 31 the terms of a payout to London and The Hague after they compensated more than 320,000 British and Dutch savers who lost money in the collapse of the Icelandic bank.

But Iceland's president refused to sign the bill, citing public opposition to the 3.8-billion-euro (5.4-billion-dollar) deal, leaving it to a national referendum, to be held March 6.

The IMF fast-tracked a 2.1-billion-dollar loan to Iceland in November 2008, one month after the collapse of the country's booming financial sector. About half of the funds have been released to Iceland.

Prime Minister Johanna Sigurdardottir discussed the issue with European Commission chief Jose Manuel Barroso during a meeting in Brussels on Thursday, her office said in a statement released in Reykjavik.

Sigurdardottir "underlined the potential unfortunate and damaging effects of any link made by member states between the Icesave issue and the second review of Iceland's economic programmme with the IMF," the statement said.

"The IMF loans and related loans from the Nordic countries and others were an important basis for the rebuilding of Iceland's economy," Sigurdardottir said in the statement.

The IMF said on January 5 its aid programme for Iceland was not linked to the Icesave deal.

IMF chief Dominique Strauss-Kahn said on January 14 he hoped a quick solution will be found to the Icesave dispute, but reiterated a resolution was "not a condition for the IMF to help Iceland."

Sigurdardottir also met with EU enlargement commissioner Olli Rehn in Brussels.

The Nordic country submitted its EU application in July, in the hope that membership would help stabilise the economy following the October 2008 collapse of its once-booming financial sector.