The financial crisis that has hammered Iceland has forced the government to call early elections, Prime Minister Geir Haarde said Friday.
Haarde said his Independence Party recommended the elections to be held on May 9, two years ahead of schedule, reported dpa.
Haarde also said he would step down as party leader in March. He is to undergo treatment for a small malignant tumour of the oesophagus at a hospital outside Iceland at the end of this month or in February, he said.
Iceland has experienced a wave of protests since October when the country's three banks Glitnir, Landsbanki and Kaupthing were nationalized when they faced collapse in the wake of the global credit crunch.
Haarde, amid increasing pressure to call early elections, had argued that such a move risked slowing down measures to counter the crisis.
The North Atlantic nation of some 320,000 people is facing a severe contraction of its economy with unemployment due to rise sharply.
Interest rates are at 18 per cent and the country recently secured a 2.1-billion-dollar bridging loan from the International Monetary Fund.
Haarde has been prime minister since 2006 after previously serving as foreign minister and finance minister. He formed a coalition after elections in 2007 with the Social Democrats as junior partner.
The leader of the Social Democrats, Foreign Minister Ingibjorg Solrun Gisladottir, is currently on leave of absence to undergo medical treatment in Sweden.
Gisladottir has also called for early elections.
Independence Party deputy leader Thorgerdur Katrin Gunnarsdottir is seen as Haarde's likely successor.
The Independence Party has postponed next week's scheduled party conference to March 26-29. A major issue includes the question of whether Iceland should apply to join the European Union. dpa lsm bve