UPDATE 3-Dutch C.Bank chief: Iceland lied about bank woes

* Wellink: Iceland knew about problems before bank collapse

* UK, Netherlands lent Iceland $5 bln after Icesave failure

* Iceland PM says delay to aid over Icesave damaging

* Says Icesave shouldn't affect EU accession

(Adds Iceland comment, PM quote)

By Harro ten Wolde

AMSTERDAM, Feb 4 (Reuters) - The head of the Dutch central bank accused Iceland's former government on Thursday of lying about the health of the country's banks before their collapse in late 2008, adding fuel to an already tense multibillion-dollar dispute.

Britain and the Netherlands want Iceland to repay more than $5 billion they paid out to savers who lost money when Iceland's financial system imploded. But disagreement over terms has held up payments of aid to the North Atlantic island, threatening its economic recovery.

In testimony to a commission probing the credit crisis, central bank head Nout Wellink said Iceland's central bank had alerted Reykjavik to problems at the country's banks well before they collapsed in October 2008, but this information had not been passed on in a proper or timely manner to the Dutch.

"I've been hoping for a long time that they (Iceland's government) just didn't see it, but to be honest after the words of my colleague (in Iceland's central bank) that it was several months before that he had warned them, I thought they have lied to us," Wellink said.

Benedikt Stefansson, adviser to Iceland's minister for economic affairs, told Reuters that since the collapse of Iceland's financial system in October 2008, the country had a new government and new heads at its central bank and financial services watchdog.

He said Iceland had set up a special commission to look at the collapse of the banks and it is expected to report its findings at the beginning of next month.

GLOBAL EFFECTS

Iceland's banking system, currency and economy crashed in late 2008, victims of the global credit crunch. The island of 320,000 people was forced to go to lenders, led by the International Monetary Fund (IMF), for money to get back on its feet.

After a first tranche of aid, the second IMF review of its programme was scheduled for January, but Iceland's president threw a spanner in the works at the start of the year by refusing to sign a bill setting out terms for repaying Britain and the Netherlands for so-called Icesave losses.

This triggered a referendum on the bill, which polls suggest will be rejected by Icelanders when they vote on March 6.

Iceland's prime minister, Johanna Sigurdardottir, told European Commission President Jose Manuel Barroso and Enlargement Commissioner Olli Rehn at a meeting in Brussels on Thursday that linking aid with Icesave could damage Iceland's recovery. [ID:nLDE6132A0]

She said many Icelanders believe they were the victims of failures in EU legislation and that the burden of Iceland's banking collapse was being unfairly distributed among the three countries involved.

Sigurdardottir also said Icesave should not hold up Iceland's accession to the EU.

"EU accession is about the future of Iceland, its long-term interests and its position in Europe ... Again, there is no link between Icesave and our EU accession process and it would be very illogical to make such a link," she told Reuters in an interview.

The meeting in Brussels follows talks between Dutch and British ministers in The Hague last Friday to discuss a way out of the Icesave crisis. Those talks ended with no progress and no further discussions are scheduled. [ID:nLDE60S0NV]

(Reporting by Harro ten Wolde and Ben Berkowitz in Amsterdam, Simon Johnson in Stockholm and Darren Ennis in Brussels. Writing by Ben Berkowitz and Simon Johnson, editing by Michael Roddy)