REYKJAVIK - THE Icelandic state has officially taken control of the country's third largest bank, Glitnir, the Financial Supervisory Authority (IFSA) said on Wednesday.

The IFSA 'has under powers granted by the Icelandic parliament proceeded to take control of Glitnir', it said in a statement, a day after announcing that it had also nationalised Iceland's second largest bank, Landsbanki.

Iceland's government announced on September 29 that it had taken over 75 per cent of Glitnir, teetering on the brink of bankruptcy due to a lack of liquidity.

Wednesday's announcement came two days after Prime Minister Geir Haarde unveiled emergency laws to save the country's economy, including allowing the government to take control of all banks and financial institutions, take over assets, merge institutions and force institutions to declare bankruptcy.

'As declared by the government, all domestic deposits are fully guaranteed. Glitnir's domestic branches, call centres, cash machines and Internet operations will be open for business as usual,' IFSA said.

'The action taken by the IFSA is a necessary first step in achieving the objectives of the Icelandic government and parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits,' it added.

Glitnir's Finnish branch meanwhile said in a statement that its Icelandic owner had decided to sell it off. -- AFP