UK local authorities fear for Iceland investments

LONDON, Oct 8 (Reuters) - British local authorities called on the government on Wednesday to protect investments made by at least 20 councils in Iceland's troubled Landsbanki LAIS.IC.

The Local Government Association, which represents more than 400 councils in England and Wales, has written to finance minister Alistair Darling to request a meeting.

The LGA wants the same assurance Britain has given to individual savers that all money invested in Landsbanki's Internet bank IceSave will be fully protected. Landsbanki was taken under Icelandic government control this week as the country moved to stave off national bankruptcy.

"We are today seeking an assurance from the chancellor that councils' assets will be protected in the same way as personal assets. Town halls invested in Landsbanki as a reputable bank with a solid credit rating," LGA chairman Margaret Eaton said.

"In the short term, these councils are confident that they will have sufficient funds to tide them over for a considerable period of time," she said.

The opposition Conservative Party estimates local authorities in England and Wales have invested up to 40 million pounds ($70.27 million) in Icelandic banks, but there is no official figure.

Prime Minister Gordon Brown's official spokesman said the government was ready to meet with British local authorities.

"Of course we understand the issues in relation to local authorities and the government stands ready to sit down and discuss with local authorities any particular issues that may arise," he said.

"At the moment it is very difficult to get much, if any, information out of the Icelandic authorities

IceSave stopped taking deposits or any withdrawal requests on Tuesday.

Darling said on Wednesday the government would protect deposits of British savers. Brown also said the government would take legal action to try to recover money invested in the bank.

The Conservative Party said it feared problems ahead.

"The breakdown of these Icelandic banks will create immediate problems with cash flow for the local authorities unable to take their money out, and raises the possible prospect of a massive financial shock if -- in a worst case scenario -- the investments are unrecoverable in whole or part," it said.

"This in turn will threaten council tax hikes or cuts in local services. An informal telephone survey today by the Conservative Party has identified a range of councils, with exposure up to 40 million pounds."

(Reporting by Frank Prenesti, editing by Mark Trevelyan)