Iceland's parliament approved an amended bill on Wednesday to repay more than $5 billion lost by savers in Britain and the Netherlands when the island's banks collapsed during the financial crisis.

The passage of the legislation, backed by a 33-30 margin by members of parliament, boosts Iceland's hopes of swift entry to the European Union and of getting its shattered economy back on track.

Approving the bill is the better option and will avoid even more economic damage, Steingrimur Sigfusson, finance minister and leader of the Left-Green party, said during the debate.

History will show that we are doing the right thing.

The global financial crisis devastated Iceland's economy, bringing down its top banks and plunging the country into recession.

Iceland was forced to go lenders, headed by the International Monetary Fund, for a $10 billion aid package.

But the dispute with Britain and the Netherlands has held up some funds, made it difficult for the country to relax exchange controls -- put in place at the height of the crisis -- and clouded Iceland's bid to join the EU.

In August, Reykjavik struck an initial deal to reimburse the two EU nations for bailing out investors who lost money held in high-interest online savings accounts when Iceland's financial system cracked under the pressure of the global credit crunch.

But Britain and the Netherlands balked at changes to the so-called Icesave bill introduced by the Icelandic parliament that would have meant the government's repayment guarantee running out in 2024.

Iceland's coalition government has struggled to push the new bill -- which extends the payment guarantee -- through parliament.

The deal is deeply unpopular with the Icelandic population and there is widespread resentment that taxpayers are being left to foot the bill for mistakes made by financial firms operating under the watch of other national regulators.

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