A banking crisis in Iceland has put millions of public cash at risk.

Tonbridge and Malling council has revealed today that it has £1 million invested with Landsbanki, one of two Icelandic banks nationalised this week because of the slump.

It has joined KCC, which has £50 million invested with the bank, in calling for the government to guarantee the money will be protected.

Tonbridge and Malling council deposited the money in July and was due to get the investment back at the end of the month.

Chief executive David Hughes said: “Clearly there is severe doubt as to the Icelandic Government’s intentions for such deposits now that it is in control of the bank.

“When the investment was made Landsbanki had a very strong credit rating and there was no reason to doubt its viability.”

The council has a total of 21 investments spread across 16 financial institutions.

Mr Hughes added: “The Council is fortunate to hold strong reserves and there will be no cuts in services in consequence of this regrettable development nor will future council tax levels be adversely affected.”

Maidstone council and Tunbridge Wells council are unaffected.

Kent County Council is seeking urgent talks with the government about its £50 million.

While the government has offered to protect individual savers and investors with cash invested in Icelandic institutions, no such guarantee has been made to councils.

County Hall finance chiefs sought to play down the crisis and have insisted there is no risk of services being cut. But they admit they do not yet know what the scale of the risk is.

Cllr Nick Chard (Con), KCC’s cabinet member for finance, denied that the authority had acted irresponsibly and pledged that no services would be cut.

“I do not know what the risk is but I believe it is minimal. The council does not have a liquidity problem. We will fight to get every single penny back. We work under very clear guidelines and get professional advice and up until last week, these banks were rated very highly.”

He added: “We’ve spread the risk as much as possible and have £470million on deposit at present. In Kent, there will be no impact on council services.”

The Local Government Association says it does not expect "significant financial problems" in the short term as town halls put money in a wide range of institutions.

But it wants the same protection as private savers, saying money had been prudently managed in line with the government's own guidance.

LGA chairman Margaret Eaton said: "We are today seeking an assurance from the chancellor that councils' assets will be protected in the same way as personal assets. Town halls invested in Landsbanki as a reputable bank with a solid credit rating.”