The Iceland parliament yesterday approved a bill to repay about €3.8 billion (£3.37billion) to Britain and the Netherlands, to cover the losses of depositors in Icesave, the online bank that went bust during the collapse of Iceland's financial system.

The bill was passed by a narrow vote of 33 to 30.

A poll taken in August had shown that 70 per cent of Icelanders were against the deal. According to analysts, the settlement, which is about 40 per cent of the nation's gross domestic product, will cost about €12,000 for each citizen on the island nation of 320,000.

However, the government supports the bill citing Iceland's proposed bid for the European Union membership.

"Approving the bill is the better option and will avoid even more economic damage," finance minister Steingrimur Sigfusson said during the debate. "History will show that we are doing the right thing," he added.

Almost 300,000 British savers had their accounts in the bank frozen in October 2008 following the failure of its parent company Landsbanki. The British and Dutch governments agreed at the time to compensate savers for the full amount of their losses and has since put pressure on Iceland to repay the debt.

More than 320,000 savers lost out when the online lender collapsed in October 2008.

Iceland's parliament has approved plans to repay 3.8billion euros (£3.4bilion) to savers in the UK and the Netherlands.

The money will go to the British and Dutch governments, who partially compensated savers when the Icesave online bank failed.

Iceland will initially use assets from the collapsed bank to cover the cost of the repayments, with any additional sums covered by the state.