A London MEP today opposed EU membership for Iceland - because of the millions of pounds the country owes the capital.

Icelanders have voted a second resounding "no" to proposals to repay €4bn (£3.5bn) to Britain and the Netherlands for the collapse of the country's banking system.

Chief Secretary to the Treasury Danny Alexander said he was disappointed that Icelanders had again rejected an "Icesave" debt deal, adding that the issue would now probably go to the courts.

Icelanders rejected for a second time a plan to repay €4bn (£3.5bn; $5.8bn) to Britain and the Netherlands from a bank crash, results showed today, and the prime minister said economic and political chaos could follow.

Two of Britain's wealthiest and most colourful businessmen vowed to clear their names yesterday after they were arrested as part of an international fraud investigation into the multibillion-pound collapse of an Icelandic bank.

Big Ben only stopped chiming in the new year a few hours ago but there is already good news for investors: the amount of compensation they can claim for deposits made to a financial services firm that subsequently collapses rose yesterday.

Iceland, Britain and the Netherlands have struck another deal over the repayment of the $5bn (£3bn) owed by the island nation in connection with the collapse of the online bank Icesave at the height of the financial crisis two years ago, the Dutch finance ministry said yesterday.

Britain is "prepared to be flexible" to reach a deal with Iceland over the £2.3bn debt owed since the collapse of the online savings bank Icesave, the Chancellor, Alistair Darling, said yesterday.

The next few days will be crucial in determining whether a deal can be reached between the British and Icelandic governments over debts stemming from the collapse of the online savings bank Icesave in 2008, Reykjavik said yesterday.