Kent County Council it to put on hold fresh investments in banks overseas as it faces continuing questions about the £50million it has locked up in Icelandic institutions.

A report on the crisis presented to KCC’s Conservative cabinet today said that in view of the possible threat to its stake in three banks holding taxpayers’ money, financial chiefs have decided that any new investments will go into a low-risk Treasury-backed scheme.

The report describes the situation as "a serious financial issue for KCC, but it is manageable".

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Although considered a safer option, the county council says because the Treasury offers lower interest rates, there could be an impact on the authority’s budget.

Meanwhile, KCC has revealed it still has £163million invested in foreign banks, more than a third of its total of £463million on deposit. Some of that is in banks in Australia, Ireland and Belgium.

The sum is disclosed in a letter from KCC leader Cllr Paul Carter to Chancellor Alastair Darling, in which he calls for all councils to review their overseas’ holdings.

Cllr Carter said that if all authorities were to withdraw from foreign banks and instead invest money in the UK, the banking system would benefit from a significant boost.

“We believe this could provide a significant win-win position for all concerned and demonstrate to the public that we are jointly doing all we can both to protect both our banking sector and local taxpayers' money. Aligning our national interests in this way would also ensure that when problems occur, resolution can be clear and swift.”

But that proposal has drawn short shrift from the opposition Labour group. Cllr Mike Eddy (Lab) said: “If we follow his logic, Kent would put all our money in one basket, a single bank or in the shares of a single company. That is the logic of the gambling addict who bets everything on a single horse.”

He added: “It would be less ludicrous if Mr Carter had the courage of his convictions and had put the council money into UK banks. As it is Kent has recently moved some of its funds to Irish and Australian banks.”

In another development, KCC has invited independent auditors to review its handling of its investments in Iceland.