Iceland assembly to meet early after Icesave block

REYKJAVIK Jan 6 (Reuters) - Iceland said on Wednesday its parliament would reconvene on Friday, earlier than previously planned, after the president rejected an unpopular bill to repay Britain and the Netherlands more than $5 billion.

The assembly brought forward its meeting to Jan 8. from Jan. 26 after President Olafur Grimsson refused to sign the "Icesave" bill into law on Tuesday, threatening vital economic aid and casting doubt on Iceland's bid to join the European Union.

Britain and the Netherlands compensated savers to the tune of more than $5 billion they lost in high interest Icesave accounts when Iceland's banks collapsed under the pressure of the global credit crunch.

The decision to reject the bill forced a national referendum which would be held within the next 4 to 8 weeks, an Icelandic official said on Tuesday, but the outcome is uncertain, with a recent poll showing almost 70 percent of voters oppose the bill.

Only once in the republic's 65-year history has a president, whose post is largely symbolic, refused to sign a bill into law. The constitution says the issue must then be put to the public.

Nearly a quarter of Icelandic voters, angry at the prospect of paying debts they feel are onerous and unfair, had petitioned him to reject the bill, and a poll on Wednesday showed that more than half of Icelanders supported the president's decision.

Britain warned Icelanders that if they rejected the bill, the north Atlantic island with a population of 320,000 would face financial isolation.

(Editing by Elizabeth Fullerton)