Britain is planning to lend about three billion pounds to Iceland to repay Britons with savings in a stricken Icelandic bank, a newspaper reported on Wednesday.

The Financial Times, quoting unnamed officials in Iceland, said a British delegation hoped to wrap up the deal -- worth about 30 percent of the island nation's gross domestic product -- during a trip to the country this week.

The Treasury announced Tuesday that the delegation would be heading to Iceland to finalise a compensation deal for British savers with Icesave, a subsidiary of Landsbanki.

After talks between the Chancellor of the Exchequer Alistair Darling and Icelandic Prime Minister Geir Haarde, "officials from the Treasury and Bank of England are going to Iceland to work on finalising an agreement that aims to compensate UK depositors and ensure fair treatment for creditors", a statement said.

The freezing of thousands of British-held accounts following the collapse of Icesave came close to provoking a diplomatic incident earlier this month.

A delegation visited Iceland October 10-11, with both sides reporting progress on the issue of compensation for British savers.

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