REYKJAVIK (AFP) - Iceland on Saturday received a compensation proposal from Britain and the Netherlands over the collapsed Icesave bank which heavily slashes Reykjavik's repayment burden.

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"The proposal includes lowering to a huge extent the repayment burden for Iceland," Icelandic Prime Minister Johanna Sigurdardottir told RUV public radio.

An opposition party MP, Birgitta Jonsdottir, told AFP the British and Dutch proposal had to do with interest rates on the repayment being variable rather than fixed.

Britain and the Netherlands are requesting the reimbursement of billions of dollars (euros) from Reykjavik for compensating 320,000 British and Dutch savers who lost their money in the collapse of the online Icesave bank.

The Icelandic government has been negotiating with Britain and the Netherlands in a bid to avoid putting the divisive Icesave issue to a referendum, which polls predict would be largely won by a 'no' vote.

"There is an obvious will among government in the UK and The Netherlands to get an agreement with the Icelandic government," Finance Minister Steingrimur J. Sigfusson told AFP following a meeting at which the proposal was examined.

Iceland's parliament narrowly approved on December 31 the terms of a payout to London and the Hague, but Iceland's president refused to sign the bill and instead put the issue to a referendum to be held March 6.