Britain's security services have been accused of spying on Iceland during a bitter row following the financial crisis.

Icelandic politician Birgitta Jónsdóttir says spy agencies monitored messages sent by Iceland's negotiating team as Britain was trying to recover savers' cash held in collapsed Icelandic banks.

Her comments risk dragging the UK deeper into the row triggered by whistleblower Edward Snowden. His leaked documents suggest the US National Security Agency monitored 35 world leaders' phone conversations while Britain's GCHQ had a 'listening post' in Berlin.

Ms Jónsdóttir said in 2010 she warned members of Iceland's negotiating team to avoid using web-based email after being tipped off by WikiLeaks founder Julian Assange.


Soon afterwards a G-mail message was leaked from Iceland negotiator Donald Johnston, which included suggested strategies such as: "If the British and the Dutch refuse to negotiate further and indeed stick with their "final offer", I believe Iceland should stop being "Mr Nice Guy" and take off the gloves."

UK sources urged caution regarding Ms Jónsdóttir's claims.