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Iceland's socialist government was surveying the damage Sunday after a referendum rejected a deal to pay Britain and the Netherlands billions for losses in the collapse of the Icesave bank.    As expected, Icelanders overwhelmingly voted down the deal in Saturday's referendum, with some 93.6 percent of voters lined up on the "no" side after more than 50 percent of the votes had been counted.    Only 1.5 percent of voters had so far voted "yes" to the Icesave deal, said RUV public broadcaster which compiles all electoral statistics.

Icelanders were asked to vote on whether the country should honour an agreement to repay Britain and the Netherlands 3.9 billion euros (5.3 billion dollars) 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.    Some observers had warned that a "no" vote might result in the International Monetary Fund blocking the remaining half of a 2.1-billion dollar rescue package.    It could also hit European Union and euro currency membership talks, Iceland's credit rating and destabilise the leftwing government, which negotiated the agreement in the first place, they argued.

Grimsson said that while Icelanders were not against compensating Britain and the Netherlands, many considered that the repayment conditions, and especially the high 5.5-percent interest rate agreed upon, were exorbitant.    "The people of Iceland, farmers, fishermen, teachers, nurses, are by and large willing to repay to Britain and the Netherlands what is equal to over 20,000 euros per depositor," Grimsson said.    "But they are not ready to pay a very high interest rate so that the British and Dutch governments would make a huge profit off this whole exercise."

Talks on how Iceland will repay more than 3.8bn euros (£3.3bn) of debt it owes to the UK and the Netherlands have broken down without agreement.

The collapse of the Iceland-based Icesave online bank in October 2008 hit savers in both countries. The UK and Dutch governments are seeking repayments from Iceland after they compensated savers themselves.

Iceland plans to hold a referendum on the Icesave repayment on 6 March, but the government is hopeful it can reach a different deal ahead of that. Opinion polls suggest that a majority of Icelandic voters would reject the repayment plan. The dispute has delayed International Monetary Fund help for Iceland, which Reykjavik needs to shore up its stricken economy.