The group wants to establish a claims procedure for British depositors to get their money back as soon as possible.

A cancer hospital in Manchester has announced it was the latest victim of the Icelandic bank collapse.

Meanwhile, Chancellor Alistair Darling is continuing talks with the G7 finance ministers in Washington.

The Treasury delegation in Reykjavik includes officials from the Bank of England and the Financial Services Authority.

Britain is demanding the recovery of funds deposited by local councils, as well as public bodies, companies and charities in collapsed Icelandic banks.

After the Icelandic government took control of three of its leading banks, Prime Minister Gordon Brown strongly condemned Iceland's failure to guarantee British deposits.

More casualties

Sharp exchanges ensued between Mr Brown and his Icelandic counterpart Geir Haarde but the countries now say they will work together for a solution.

Mr Haarde said the government had introduced legislation, making the claims of depositors a high priority in apportioning the nationalised bank's assets.

However, the BBC's Clive Myrie in Reykjavik said Iceland is crippled with debt and giving UK depositors their funds may depend on the country securing emergency loans from other countries or the International Monetary Fund (IMF).

The Treasury said it wanted to "find a solution" to the crisis to protect UK depositors and enable councils and other bodies with money at stake to recover it as "quickly as possible".

As more casualties of the Icelandic banking system's meltdown emerged on Friday, one of the UK's leading cancer treatment centres revealed it could lose £7.5 million.

The Christie NHS Foundation Trust, based in Withington, said the bulk of the money - £6.5 million - was made up of charity donations while the remainder deposited with Icelandic banks Kaupthing Singer and Friedlander had come from the NHS.

So far more than 100 local authorities in England, Wales and Scotland have revealed they have deposits worth £842.5m in total.

And at least 60 UK charities fear they may have lost up to £120m of funds invested in failed Icelandic banks.

Meanwhile, UK Chancellor Alistair Darling has called on the Group of Seven (G7) rich countries to "do whatever it takes" to tackle the global financial crisis.

Speaking to the BBC before he and his fellow G7 finance ministers started their meeting in Washington, he said it was time for action not just words.

"The critical thing is that we don't just talk about these things but we actually get on with it," he said.

BBC