Partial referendum results show 58 percent voting no, and 42 percent supporting the plan.

"The worst option was chosen. The vote has split the nation in two," Prime Minister Johanna Sigurdardottir said on state TV.

It is the second time a referendum has rejected a repayment deal, and the case will now go to an international court.

Landsbanki ran savings accounts in the UK and Netherlands under the name Icesave and investors there lost 4 billion euros.

When it collapsed in 2008, the British and Dutch governments had to reimburse 400,000 citizens - and Iceland had to decide how to repay that money.

Under the terms of the rejected deal, Iceland would have paid the money back with 3.3 percent interest to the UK, and 3 percent to the Netherlands, over 30 years between 2016 and 2046.

Under the previous proposal, the money was to be paid back with 5.5 percent interest between 2016 and 2024.