The Bank of England has pledged a £100million loan to the UK arm of the collapsed Icelandic bank Landsbanki to aid the repayment of the bank's UK creditors. This will directly benefit Savers with Icesave, the bank's internet counterpart.

A Bank of England spokesman said "This loan will help ensure an orderly wind-down of Landsbanki which will maximise the return to UK creditors".

Icesave closed for business in 2008, freezing all accounts leaving its 300,000 UK savers with no access to their cash.

Chancellor Alistair Darling announced details of the loan in the Commons this afternoon.

It has not yet been specified exactly how the funds will be made available to those affected, and the FSCS (Financial Services Compensation Scheme) is still devising a plan of how savers are to be compensated for their losses.

Earlier today, the chancellor said that a plan to aid business customers and savers with Landsbanki was close to completion. The government has seized the banks UK assets and Mr Darling has threatened to use them to raise money in order to help customers whose savings accounts have been frozen.

Athough the £100m loan is not expected to cover the entire cost of compensating savers, the UK Treasury has assured that all UK savers' money is protected.

The issue has caused political disruption between the Icelandic and UK governments.

Icesave customers in the UK will be receiving compensation for the loss of their savings, but as the bank is not registered in the UK a portion of the compensation should come from the Icelandic authorities.

The Icelandic compensation scheme specifies that they will provide the first €20,000 of compensation paid to affected customers, with the remaining amount provided by the UK's Financial Services Compensation Scheme (up to the UK covered limit of £50,000).

However, there have been debates about how the Icelandic compensation scheme will raise this money, and how much those that saved with Landsbanki will get.

Mr Darling told the Commons "Our authorities have set up an arrangement, agreed in principle, for an accelerated payout to depositors. We are also working with the Icelandic authorities to facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks."

The announcement came after a meeting took place in Washington on Sunday afternoon between the chancellor and the Icelandic finance minister. Mr Darling urged him to provide a fast resolution of the situation.