REYKJAVIK: Iceland's parliament met on Friday to thrash out plans for a referendum on terms under which the country will repay more than $5 billion to Britain and the Netherlands in the wake of a banking collapse.

Reaching agreement with the two European Union countries is vital for the continued flow of aid to Iceland, which is still in the grip of a devastating recession and needs funds to help bring its economy back to a more normal footing.

But Icelandic President Olafur Grimsson unexpectedly refused to sign an amended law this week on repayment, citing a wave of popular anger over the bill and forcing a referendum on the highly contentious issue.