Icelandic voters overwhelmingly rejected a $5.3-billion deal to repay debts to Britain and the Netherlands for their losses in the 2008 collapse of Iceland's private online bank, Icesave.
Partial results from Saturday's referendum on the issue show that more than 93 percent of voters said "no" to the legislation.
Britain and the Netherlands compensated about 340,000 of their citizens who lost the money they had in Icesave.
The bill narrowly passed Iceland's parliament in December, but President Olafur Ragnar Grimsson refused to sign it, saying the terms of repayment were too harsh.
Under the plan, each citizen would have to pay about $135 a month for eight years. The president said many Icelandic families cannot afford that.
Talks among the three countries Friday ended without agreement.
Iceland's failure to reach a final repayment plan could hurt its aspirations for European Union membership.
Iceland's finance minister, Steingrimur Sigfusson, said Reykjavik will honor its financial obligations regardless of the poll's outcome.
Some information for this report provided by AP, AFP and Reuters.