Iceland's prime minister, facing a new wave of protests, today rejected the idea of forming a broad-based government including the opposition.
A demonstration by about 8,000 people yesterday recalled the protests of late 2008, which led to the resignation of the North Atlantic island's centre-right government in January 2009.
An election the following April was won by the Social Democrat Alliance led by Johanna Sigurdardottir.
One of the demands of yesterday's protesters, who banged on bins and steel drums and pelted the parliament building in Reykjavik with eggs and paint, was for the formation of a coalition government that included the opposition.
Ms Sigurdardottir, who is in coalition with the Left-Green party, rejected this, telling a news conference: "It's not the solution to this problem."
Political tension has risen since people affected by the country's 2008 financial crisis have been forced to sell their homes.
Differences between political parties have widened since parliament voted to indict a former prime minister for negligence over his handling of the crisis, but took no action against former ministers belonging to the current government.
Ms Sigurdardottir said the government would seek closer cooperation with the opposition in parliament, and with the Homes Coalition which defends the rights of homeowners.
"It's not like we haven't been doing anything for the past 900 days. As you know, we have already done a lot for homes in this country, it seems that that is not enough, and we are just going to keep on doing that," she said.
Despite domestic tension, Iceland got approval last month for new loans from the International Monetary Fund (IMF), which led a $10 billion bailout.
The IMF said yesterday Iceland should be able to loosen its still-tight capital controls within six months following a court ruling that left the financial sector on safer ground.
“The conditions have been falling into place for another step towards capital control liberalisation,” Mark Flanagan, the IMF mission chief to Iceland said. “The binding constraint right now is financial system stability.”
Iceland’s top court ruled last month banks should use domestic interest rates when calculating charges on foreign currency loans, easing worries that a new wave of losses would hit the country’s shattered banking sector.
Mr Flanagan said the ruling removed much uncertainty hanging over the financial system. Although banks’ balance sheets needed further restructuring, it set the stage for an easing of the capital controls put in place to prop up the currency.