Iceland, Britain agree in principle on Icesave

REYKJAVIK (Reuters) - Iceland and Britain said on Saturday they had made "significant progress" and agreed in principle on an accelerated payout to retail depositors of failed Landsbanki's Icesave bank.

"The delegations agreed to work closely on the other remaining issues over the coming days," the two countries said in a joint statement. They said the mood of the talks was friendly.

There was no mention of the fate of investments by British institutions in Iceland's banks, which are estimated at 1 billion pounds ($1.73 billion).

An Icelandic government spokeswoman declined to comment further on the statement.

Relations between the two countries have plummeted to levels last seen during the 1970s "Cod War" as the financial crisis that has humbled the north Atlantic nation dragged in European depositors and investors.

Britain's Local Government Association has estimated 108 British local authorities have 750 million pounds invested in Icelandic banks. London's police force, its transport network and charities across Britain also have investments with them.

Prime Minister Geir Haarde said on Friday British delegates would include people from the Treasury, the Bank of England, the Financial Supervisory Authority, the Financial Services Authority and the Financial Services Compensation Scheme.

The Netherlands and Iceland agreed earlier on Saturday for Iceland to compensate Dutch Icesave clients for up to 20,887 euros ($28,650).

(Reporting by Brett Young; Editing by Richard Balmforth)