REYKJAVIK (AFP) - Iceland's PM wants to restore public ownership of power groups

• Björk and CEO in public spat over Iceland energy

The government said Tuesday it would probe the controversial takeover of an Icelandic geothermal power group by a Canadian company and wanted to reverse the privatisation of energy resources.

"The Icelandic government has decided to appoint an independent investigation committee to look into the purchase of power company HS Orka (by Canada's Magma Energy) and also into the privatisation of power companies," it said in a statement.

After making the announcement, Prime Minister Johanna Sigurdardottir said she wanted to restore public ownership of Iceland's power groups.

"It is the intention of the government to rewind privatisation in the power sector and ensure that power companies are owned by the public," she told reporters.

"The fundamental issue is to count on public companies in the power sector."

Finance Minister Steingrimur Sigfusson said the government's move was a radical shift in natural resource policy.

"This is a fundamental change in the government's policies in the matter of natural resources," he said.

The government said its probe of the planned purchase of HS Orka by Canada's Magma Energy group would be completed by August 15.

Both parties have been notified of an investigation into the legality of the purchase, the government added.

A larger investigation into Icelandic power companies and the privatisation process would be finished before the end of December, it said.

The purchase of HS Orka, which produces energy from the island's geothermal power, has been hugely controversial in Iceland.

Icelandic singer Bjork has led a public campaign against the takeover.

In a press conference last week, she called for a referendum on foreign ownership of energy resources and more transparency in talks around the deal, linking it to Iceland's banking collapse in late 2008.

Members of parliament have threatened to quit over the deal, thus endangering the stability of the coalition government as talks continue between the parties on what to do before the acquisition is completed at the end of the month.

Opponents to the takeover charge that Magma circumvented the law by establishing a Swedish company to buy HS Orka as Icelandic regulations prevent firms from outside the European Economic Area owning a local power group.

Goethermal power is one of Iceland's most valuable natural resources.