However, a majority of voters felt that even this was unfair, and have flatly refused to use any public cash to pay for the mistakes of the financial sector.

After the Icelandic Icesave internet bank collapsed in the wake of the global economic crisis in 2008, depositers in the UK and the Netherlands were compensated by their governments to the tune of €3.8 billion. The Hague and London then demanded Reykjavik pay them back.

The government had agreed to do so in an earlier deal, but the terms were considered onerous by a majority of the population. Under the terms of the original agreement, the loan would have been paid back over 15 years with high rates of interest. Estimates had suggested every household would have to contribute around €45,000.

The president of the country had refused to sign the government bill that approved a schedule of payments to the two governments, provoking a referendum on the matter in March 2010 that saw the earlier deal rejected by 91 percent of Icelanders.

President Olafur Ragnar Grimsson also refused to sign the second agreement, again triggering a referendum.

He hailed the outcome, saying: "The leaders of other states and international institutions will have to respect this expression of the national will."

But ministers from the Netherlands and Britain were in a less celebratory mood, saying they will conclude the dispute via the courts.

"The time for negotiations is over," said the Dutch finance minister, Jan Kees de Jager.

The UK's secretary to the treasury, Danny Alexander, told the BBC: "There is a legal process going on and we will carry on through these processes to try and make sure we do get back the money that the British government paid out in past years."

The European Free Trade Area Surveillance Authority, an organisation with a similar role to that of the European Commission, but for those EFTA countries in the European Economic Area, has already launched legal action against Reykjavik.

"I fear a court case very much," Icelandic Prime Minister Johanna Sigurdardottir said after the result became known.

However, the government, currently in the middle of an application to join the European Union, also reckons it can pay some 90 percent of the money owed from the sale of assets of Icesave's collapsed parent bank, Landsbanki.