Iceland's parliament approved plans to repay £3.4bn (3.8bn euros) lost by savers in Britain and the Netherlands when the country's banking system collapsed, it was reported today.
The money will reimburse the British and Dutch governments which stepped in to compensate depositors with Icesave after its parent bank Landsbanki failed last year.
The bank's collapse left more than 320,000 savers out of pocket.
Iceland's MPs backed the Icesave bill last night by a narrow margin of 33 votes to 30 in a move likely to help boost the country's bid to join the European Union and repair its battered economy.
There has been strong opposition to the measure in Iceland, amid fears the country would not be able to afford repayments.
"Approving the bill is the better option and will avoid even more economic damage," Steingrimur Sigfusson, Iceland's finance minister, said during the debate.
"History will show that we are doing the right thing."
Iceland's MPs approved an initial deal in August that would effectively turn the bailout into a loan, which would be repaid with interest over 15 years from 2016.
But the British and Dutch governments rejected amendments to the agreement introduced by the Icelandic parliament, prompting a new vote.