Britain was locked in an increasingly acrimonious dispute with Iceland on Thursday night after the nationalisation of the Nordic country’s largest banks put close to £800m of local authority money at risk and prompted Gordon Brown to threaten to seize the assets of Icelandic companies.

On Thursday, Iceland was forced to nationalise Kaupthing, its biggest and last major bank, a move its prime minister blamed in part on the “action taken against the bank by the British government”.