Icelandic voters vented their fury at the bankers and politicians who ruined the economy, overwhelmingly rejecting a $5 billion (Dh18.36bn) deal to repay debts to Britain and the Netherlands.
The outcome of Saturday's referendum had not been in doubt since Iceland had recently been offered better repayment terms than those contained in the deal on which residents were voting.
Still, the scale of the "No" vote testified to the anger Icelanders feel a year-and-a-half after their island's economic collapse became a symbol of the global financial crisis. Results from about half of the votes cast showed more than 93 per cent opposed the deal and less than two per cent supported it. The rest of the ballots were blank or invalid.
Iceland now must go back to the negotiating table with the British and Dutch in the hope of striking a new accord swiftly. The longer it takes, the greater Iceland's financial pain.
Foreign Minister Ossur Skarphethinsson told reporters Britain and the Netherlands had indicated they were willing to hold new talks.
Financial aid has been put on hold during the impasse, which is also threatening to undermine the centre-left government of Prime Minister Johanna Sigurdardottir.
"This has no impact on the life of the government. We need to keep going and finish the debate. We have to get an agreement," Sigurdardottir told public television.
Iceland desperately needs to solve the so-called "Icesave" impasse so it can get international aid flowing to its economy, which contracted around 7.7 per cent last year and is expected to shrink again in 2010.
The International Monetary Fund and Nordic countries have promised to loan Iceland around $4.5bn to help it kick-start the economy. But after initial payments, much of the cash is frozen pending resolution of the Icesave debt.
Finance Minister Steingrimur Sigfusson said voters had sent a very clear message about their disappointment and anger.
The referendum, Iceland's first since independence from Denmark in 1944, was forced by the refusal of the country's president to sign a law in January on repayment terms negotiated by the government and approved by parliament.
While polls show Iceland's people believe the debts should be repaid, they bitterly resent being stuck with a bill for the mistakes of a small number of bankers under the watch of foreign governments. The Icesave debts come to more than $15,000 for each one of the 320,000 people on the island.
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