Kent County Council has rejected claims it could lose as much as 90 per cent of the £50million it has tied up in Icelandic banks.

The claim was made by an independent financial expert representing one of the companies that advised local authorities they should stop investing in Iceland.

Mark Horsfield, a director of Arlingclose, a consultancy that advised 50 councils about where to put their money, said current market trading suggesed councils could even lose up to 99.5 per cent.

Mr Horsfield said it was tracking the market in unsecured debt linked to the winding up of companies.

"It is trading at the moment somewhere between half a pence in the pound and nine-and-a-half pence in the pound," he said. That was a "reasonable indicator" of the likely payout unless "a deal is structured" between governments and the liquidator.

However, KCC denied that was the case and said Mr Horsfield had not taken into account that local authorities were preferred creditors, who would be given priority over others. The council also said it was now expecting some of the money to be returned from one of the three banks, Heritable, in July.

Cllr Nick Chard (Con), KCC's cabinet member for finance, said: "What is probably true is that people who are not preferred creditors will not get anywhere near 90 per cent of their money back. I am not going to dispute that."

But he added: "As a preferred creditor, we are very confident of being first in the queue and that we will be getting a good return on our money."

He said he was unable to go into detail about on-going discussions because the county council had signed a confidentiality agreement with the banks’ administrators.

He emphasised that it was thought that the banks’ assets would be enough to meet all their debts to councils.

Of the £50million Kent County Council has tied up, £17million is with Landsbanki. Administrators of the bank recently indicated its liabilities, of which 40 per cent are deposits, are nearly three times the value of its remaining assets.

Other councils in Kent who invested in Iceland are Canterbury City Council (£6million) and Sevenoaks, Tonbridge and Malling and Dover, each with £1million each. Kent Police Authority also has £10million locked into the banks.