REYKJAVIK (AFP) - Iceland's health minister resigned Wednesday over a controversial deal to compensate British and Dutch savers over the collapse of the online Icesave bank, bringing the government to near collapse.

"I believe that Icesave and the continued life of this government are two separate aspects. If people want to merge these two things, I have no other choice but to leave the cabinet," Health Minister Ogmundur Jonasson told reporters after a meeting with Prime Minister Johanna Sigurdardottir.

Jonasson is a member of the Left Greens, the junior coalition member in the government with Sigurdardottir's Social Democrats.

According to daily Frettabladid, Sigurdardottir could submit her government's resignation if a deal is not reached with the Left Greens by the end of the week on how to conclude the Icesave dispute with the British and Dutch governments.

Iceland's parliament approved in August a controversial deal to pay back 3.8 billion euros (5.4 billion dollars) to the British and Dutch governments for the compensation they forked out to disgruntled savers.

However, in order to pass the deal through the Icelandic parliament, Sigurdardottir negotiated several amendments that would require the approval of London and The Hague.

The British and Dutch governments have, according to Icelandic media, rejected an amendment regarding the expiry date of the state's guarantee for the repayment, set for 2024 regardless of whether the amount has been paid in full.

In order to change the amendment again, the Icelandic government would have to put it to a new vote in parliament and this time it would risk not having enough support from the Left Greens to pass the deal through parliament.

Jonasson has been one of the government's most vehement opponents of the Icesave deal, but ultimately approved it once the amendments were agreed upon in August.