The Icelandic government and opposition parties are finalising a proposal in which the bulk of the amount owed to the two EU countries would be covered by a sale of the failed bank's assets, said the source who asked not to be named.

"They have agreed amongst themselves about the structure of a proposal," the source told Reuters, referring to the government and opposition parties.

Britain and the Netherlands have already covered losses incurred by savers who had invested in Landsbanki's Icesave online high-interest savings accounts and have insisted that Iceland pay the money back.

Iceland could enter into talks with the British and Dutch governments over the new proposal as early as next week, Icelandic state radio reported.

Asked whether talks next week were likely, the government source told Reuters: "That's a good guess, but nothing has yet been said formally." Iceland's parliament passed the country's Icesave bill setting out repayment terms in December, but the president refused to sign it, triggering a March 6 referendum on the issue.

Iceland wants to convince the British and Dutch governments to return to the table so it can avoid the March vote, which opinion polls indicate will result in voters rejecting the Icesave bill.

Many Icelanders are angry over the terms of the repayment and blame the financial fallout on poor judgment by international financial regulators.

A spokesman for the Dutch Finance Ministry said the government had not received any official proposal from Iceland.

It is unclear whether the British and Dutch governments ultimately will be prepared to discuss a new proposal which would aim for a faster reimbursement than previously discussed.

"We're trying to find a way to return the funds a lot quicker - instead of taking 15 years to pay it back, we're trying to use the bank's assets (Landsbanki) to pay it back sooner," said Progressive Party leader Sigmundur David Gunnlaugsson.

A quick sale of Landsbanki assets could recover some 90 percent of the money owed to Britain and the Netherlands.

If new talks fail to materialize and should Icelanders reject the bill, the whole Icesave issue would be sent back to square one, causing further delays to much-needed aid which the country needs to get back on normal footing.

Already, the Icesave issue has been debated for over a year in parliament, causing deep divisions in the country and serving as a major setback to the island's recovery from recession.