Iceland is seeking permission from parliament to borrow up to IKr500bn, its largest ever loan, in a move that would more than double existing foreign exchange reserves and provide further support for its troubled currency and banking system.

The proposed loan is the latest attempt by the government to fend off the effects of the global credit crisis following an announcement this month that three Nordic central banks would provide a €1.5bn ($2.4bn, £1.2bn) emergency funding package if needed.