Council representatives are preparing to meet the Iceland ambassador over the £800 million they have invested in the country.

The Local Government Association said it will demand that taxpayers' money, which it insisted had been invested "prudently" by local councils, should be at the top of the pile when repayments are made.

The group, which represents councils across England and Wales, said if it fails to win assurances from the Icelandic ambassador it will take its case directly to the Icelandic Government in Reykjavik.

More than 100 local authorities have invested hundreds of millions of pounds in Icelandic banks and some authorities could face big financial problems as a result of the collapse of the Icelandic institutions.

The LGA has already met with the British government and won a promise that authorities facing severe short term difficulties would receive assistance.

The LGA is expected to hold more talks with the government next week and has insisted that authorities have not been "reckless" by investing in the Icelandic banks.

A number of other public sector organisations, including Transport for London, have also invested millions of pounds in Icelandic financial institutions.

Gordon Brown has criticised the Icelandic Government for the collapse and frozen Iceland's banking assets in the UK but Iceland's prime minister has hit back.

Geir Haarde claims the British Government has caused enormous damage to his nation and he said he is planning legal action.

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