Iceland's coalition government collapsed yesterday, leaving the island nation in political turmoil amid a financial crisis that has pummelled its economy and required an international bailout.

Prime Minister Geir Haarde said he was unwilling to meet the demands of his coalition partners, the Social Democratic Alliance Party, which insisted upon getting the post of prime minister to keep the coalition intact.

"I really regret that we could not continue with this coalition, I believe that would have been the best result," Haarde told reporters.

Haarde, who has been prime minister since 2006, said he would officially inform the country's president, Olafur Ragnar Grimsson, that the government had collapsed. Grimsson, largely a figurehead, has asked Haarde's government to remain in place until a new administration is formed.

Weeks of protests

Last week, Haarde called elections for May bringing forward a contest originally slated for 2011 after weeks of protests by Icelanders upset about soaring unemployment and rising prices.

But Haarde said he wouldn't lead his Independence Party into the new elections because he needs treatment for cancer.

Foreign Minister Ingibjorg Gisladottir, head of the Alliance party, is expected to start talks immediately with opposition parties in an attempt to form a new government that would rule until the new elections are held.

New prime minister

Gisladottir said Monday she won't seek to replace Haarde as Iceland's leader, proposing Social Affairs Minister Johanna Sigurdardottir an Alliance member instead.

The prime minister told reporters yesterday that he had proposed Education Minister Thorgerdur Katrin Gunnarsdottir to be the new prime minister, but Gisladottir rejected that offer.

"It was an unreasonable demand for the smaller party to demand the premiership over the larger party," Haarde said.

He said he hoped a national government, formed from all of Iceland's main political parties, could lead the country until the elections.