Icelanders on Saturday massively rejected a deal to pay Britain and the Netherlands billions for losses in the collapse of the Icesave bank, the government said after partial referendum results.
"Initial figures indicate clearly that the December amendment to the Icesave legislation of August 2009 will be repealed," the government said in a statement just minutes after polling stations closed at 2200 GMT.
Some 93.6 percent of voters cast ballots opposing the deal, partial results showed after 50 percent of ballots were counted, said RUV public broadcaster which compiles all electoral statistics.
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Only 1.5 percent of voters had so far voted "yes" to the Icesave deal.
It remained unclear how many of Iceland's 230,000 eligible voters had cast their ballots Saturday, but an hour before polls closed the turnout rate stood at 54.45 percent, according to RUV.
AU$5.85 bn sought from British and Dutch
Icelanders were asked to vote on whether the country should honour an agreement to repay Britain and the Netherlands 3.9 billion euros (AU$5.85 bn) by 2024.
This would be to compensate them for money they paid to 340,000 of their citizens hit by the collapse of Icesave in 2008.
Before Saturday's plebiscite, observers cautioned that a "no" to the Icesave bill might result in International Monetary Fund blocking the remaining half of a US$2.1 bn rescue package.
It could also hit European Union membership talks, Iceland's credit rating, and destabilise the leftwing government - which negotiated the agreement in the first place - they argued.
Nonetheless, the massive rejection of the bill, which was voted through parliament in December but sent to a referendum after President Olafur Ragnar Grimsson refused to sign it, came as no surprise.
Government toiled at new deal
Observers and opinion polls had suggested as many as three quarters of voters would spurn the agreement, and the leftwing government has for weeks been attempting to hammer out a new and improved deal.
"This is nothing that comes as a surprise," Prime Minister Johanna Sigurdardottir told public broadcaster RUV late Saturday.
"After this referendum it is our job to start finishing the negotiations," added Sigurdardottir, who on Friday had described the plebiscite as "meaningless" and said she would not vote.
Finance Minister Steingrimur Sigfusson agreed.
"The result does not solve Icesave and that is something we need to solve," he told RUV.
"Now we're just going to turn to the next project: finishing the negotiations," he added.
Meanwhile a spokesman for the Dutch finance ministry said Finance Minister Jan Kees de Jager "considers the result of Icesave referendum as an internal matter for Iceland," a ministry spokesman said late Saturday.
But the spokesman added: "He is disappointed that the agreement between the Netherlands, Iceland and UK has not been put to force yet."
Magnus Arni Skulason, a founder of the Indefence movement opposed to the deal, was not disappointed at Saturday's results.
"It's too good to be true," said Skulason, who claimed to AFP earlier the Icesave deal had been "obtained through coercion, with threats from both the British and the Dutch against Iceland."
Voters angry at foreign pressure to foot bill for bankers' excess
Earlier Saturday, voters were eager to explain why they had voted "nei" to the Icesave deal.
"I will vote 'no' simply because I disagree very strongly with us... having to shoulder this burden" from the 2008 collapse of the online Icesave bank, Ingimar Gudmundsson, a 57-year-old truck driver, told AFP.
Spessi, a 54-year-old photographer, said he was infuriated that he and other tax payers were being asked to foot the Icesave bill.
"I've lost my house and it's still up to me to pay for this!" he told AFP as he left a voting booth in the Reykjavik city hall.
Hundreds of people also came out to demonstrate in front of parliament, demanding the government do more to improve conditions in Iceland.
Since its economy crumbled in October 2008, unemployment and home repossessions have increased.
And for many Icelanders, handing what they consider an exorbitant price to London is especially infuriating.
Many here still resent the 1970s "cod wars" with London over fishing rights, and over Britain's 2008 decision to use an anti-terrorism law to freeze British savers' assets in the stricken Icelandic bank Landsbanki.
