Britain has welcomed a breakthrough in the £2.3 billion dispute with the Icelandic government over the collapsed IceSave bank.

Reykjavik announced a new draft deal on repaying the cash spent by the government on compensating tens of thousands of UK savers after the 2008 collapse.

Under the terms of the proposal – which must be approved by Iceland’s Parliament and signed off by the UK and the Netherlands, which is also owed money – repayments must start by 2016, at an interest rate of 3.3 per cent, and be completed by 2046.

Talks resumed in July after collapsing earlier this year following the rejection of a previous repayment agreement by Icelandic voters in a referendum.

A Treasury spokesman said: “The UK welcomes this new proposal from Iceland on IceSave and looks forward to successfully resolving the issue by signing a new loan agreement.

“Mutually-satisfactory closure of this issue will mark a new chapter in UK-Iceland relations.”

Chancellor George Osborne said he believed the coalition had smoothed the way to a fresh deal by dropping British threats to oppose Iceland’s EU membership application.

Speaking to reporters shortly before the new deal was announced yesterday, he said: “The previous government had made almost no progress.

“We have adopted a different approach to this. We have, for example, stopped blocking Iceland’s application to join the European Union because I think that helped clear the air.

“But it is also clear that they cannot complete those negotiations without resolving this issue. It is not just us, by the way – the Dutch are involved as well.

“I think this has led to a much more constructive relationship between the Icelandic government and the British government, which was pretty glacial, frankly.”