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Darling has indicated that he will be announcing measures to help British savers in the troubled bank in the House of Commons later.

Darling told GMTV: "I am very aware of the fact that Iceland has, sadly, chosen to default on its obligations here.

"We are pursuing Iceland and we will pursue it vigorously to make sure that we get the money due to us back.

"It demonstrates my commitment to help people who have put money into banks in these exceptional circumstances."

Yesterday (7 October) the Icelandic authorities nationalised Icesave's parent bank Landsbanki, prompting Icesave to stop processing new deposits or withdrawal requests from customers.

The news prompted customers of the online savings bank to become increasing concerned that Iceland would not cover their deposits.

Under existing protection arrangements, the Icelandic government is liable to pay the first £16,317 from its own deposit guarantee scheme, with the with the rest, up to £50,000, covered by the Financial Services Compensation Scheme (FSCS) in the UK.

However, Iceland's Prime Minister Geir Haarde warned yesterday that the country was facing a risk of "national bankruptcy".