Iceland may apply for European Union membership early next year, EU Enlargement Commissioner Olli Rehn said today.

Rehn said the Commission was "mentally preparing" for the possibility of an application from Iceland, adding: "It is more music for early next year."

It was up to Iceland, a North Atlantic island of 300,000 people, to decide when any application was made. "But clearly there is movement in Iceland," he said.

Icelandic Prime Minister Geir Haarde said on Saturday the crisis-hit country could start talks on joining the European Union if they were on the right terms.

Haarde used to be a staunch opponent of EU membership but has softened his stance since the country's worst-ever financial crisis blew up in October.

He said on Nov. 14 a commission would look into EU membership and that his Independence Party would hold its party conference in January instead of October 2009, to discuss the issue of joining the 27-nation bloc.

Many Icelanders have in the past been wary of EU membership, worrying that it could hurt the island's important fishing sector and its independence.

But the financial crisis has made most more favourable toward the EU in the hope that adoption of the euro could be a cure for economic misery.

The Icelandic economy is expected to contract 10 percent next year and unemployment is set to soar.

Brussels has said any application by Iceland to join could move quickly as the country has already adopted many EU laws.