Thousands of protesters called yesterday for Iceland's government to step down immediately, dismissing the prime minister's promise to resign and call an early election.

Prime Minister Geir Haarde, sick with cancer, said on Friday he would quit under the cloud of the country's economic collapse and called for a May 9 election.

Police estimated as many as 6,000 demonstrators stood on the square outside Iceland's Althing parliament, some carrying signs demanding 'a new democracy'.

It was the fifth straight day of protests, and the demonstration was as big as any since regular Saturday protests started in October.

Haarde voiced "contempt" yesterday for some of the actions by banks that triggered the country's financial crisis.

Iceland, one of the richest countries in the world per capita in 2007, plunged into crisis in October when it fell victim to the global credit crunch. Its currency collapsed as its financial system imploded and unemployment in the island nation of 320,000 is surging.

"How is it possible to sit at home and not protest against the complete misuse of power we have had to suffer as a nation?" teacher Sigrun Bragadottir told Reuters.

"The rampant greed was completely out of control and the corruption overwhelming. I want someone to at least apologise and take some responsibility."

Haarde shocked the island nation on Friday when he said he would not seek re-election and called for a vote on May 9. Opinion polls predict a sharp shift to the left at elections.

Haarde told national radio yesterday he had not stepped down because of the plunging popularity of his coalition and said he hoped to run the government until the elections, despite his health problems. He said he was going abroad, probably to the Netherlands, for surgery to treat a malignant tumour of the oesophagus.