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The prime minister of Iceland has warned the country's banking crisis will be painful.

At a press conference, a forlorn looking Geir Haarde told a group of international journalists that people will lose money.

"We are gradually moving through this crisis," he said.

"There are still many things to do. We have never had a banking crisis like this before, but we are all working very hard.

"This is going to be a painful process for many people. Some people will be losing substantial fortunes they have invested in the banking system."

Mr Haarde also warned of job losses in his country – specifically in the banking industry.

He said he expected there would be enough assets to cover claims from depositors within Iceland and if the nation's financial compensation scheme was not strong enough the government would step in.

Turning to UK holdings by Icelandic firms, Mr Haarde said it was important for business to continue as normal.

"It is very important that business continues as normal for Icelandic operations in the UK, which employ 100,000 people.

"It is Important they continue untampered."

However, he did not comment on the £700 million invested in Iceland by UK councils and holdings of other international investors.

He also encouraged the Dutch government to bring in its own guarantees on citizen's accounts at Icesave as the British government has done – describing the moves as "helpful".