Gordon Brown today vowed to protect British savers who face losing money in the Icesave online bank which collapsed yesterday, and threatened legal action against the Icelandic authorities to force it to honour its obligations.

Icesave, the online British arm of Iceland’s second biggest bank Landsbanki, announced yesterday that its customers could no longer withdraw or deposit money, as Landsbanki was taken into receivership.

“The Icelandic government have told me, believe it or not, they have no intention of honouring their obligations there,” Alistair Darling, the Chancellor, told BBC radio.

But citing “exceptional circumstances” he said: “We have decided we will stand behind those savers."

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Mr Brown later told a Number 10 news conference that Britain stood ready to sue Iceland to honour its responsibilities. “We are showing by our action that we stand by people who save, he said.

More than 300,000 British customers had around £4 billion deposited in Icesave accounts, which until yesterday offered higher rates of interest than British banks.

The UK government last week issued a general guarantee that British account holders will be able to reclaim their money if their financial institution goes bankrupt - but only up to a maximum of £50,000 each.

One saver, Peter Amodio, has told The Times that he had £180,000 on deposit with Icesave. Another saver had her £200,000 life savings deposited with the online bank. It was not clear today whether Mr Darling and Mr Brown intended to ensure that such savers got all their money back.

Actually reclaiming the money may prove a struggle for Icesave customers, moreover, because Icesave was one of a handful of banks to claim the so-called passport exemption - meaning that savers must apply to the Icelandic authorities for the first 20,887 euros (£16,170 pounds) they have lost, with the British compensation scheme topping up the rest up to the £50,000 maximum.

Mr Darling made plain today that he would pursue the Icelandic authorities, if necessary through the courts, to help savers get their cash.

“We are pursuing Iceland and we will pursue it vigorously to make sure that we get the money due to us back,” the Chancellor told GMTV television.

“But in the meantime I am going to be able to help those savers who would otherwise have to look to Iceland to get their money back. I am prepared to stand behind them and to stand behind the depositors.

“It demonstrates my commitment to help people who have put money into banks in these exceptional circumstances."

The online bank’s website remained frozen today.

“We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers,” read a message on the site. “We hope to provide you with more information shortly."

Icesave customers have vented their fury online as the tried to rescue their savings.

Steve, 48, a textile management agent from Derby, central England, said: “My wife and I need to pay up to £12,000 for renovations on our bungalow next week and I have no idea if we’ll be able to access our money to do so.

“I’ve been panicking this morning and I can’t concentrate on my work. I’m worried we’ll lose all the money if the Icelandic government doesn’t have enough in its coffers to guarantee everyone’s savings."

Justin Smith, a West London IT consultant, said: “I feel confused and badly informed by Icesave -- there has been no direct communication from the firm and now I am unable to withdraw my life savings, with no idea on what happens from here."

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