The government of Iceland has drafted in one of London’s top litigation firms to explore possible claims against the Treasury stemming from the Nordic country’s banking collapse, the Financial Times has learnt.

Reykjavik’s appointment of Lovells, a firm known for its heavyweight disputes practice, indicates that the war of words over chancellor Alistair Darling’s decision to put the UK arm of Iceland’s biggest bank into administration and to freeze the assets of another has moved well beyond political posturing.