The head of Iceland’s central bank will be officially forced out of office today under new legislation hastily drawn up when he refused to resign.

David Oddsson, who is bearing the brunt of the blame for failing to stop the country’s financial institutions from racking up unmanageable levels of bad debt, had remained in office despite calls for him to go.

But he is reported to have said his goodbyes to staff yesterday after Iceland’s Parliament passed a law effectively abolishing his position.

A central bank spokesman said: “He talked to all the staff at the bank, they understand that this Bill will be passed so he took the opportunity to thank them.”

The removal of the crisis-stricken nation’s central bankers has been the top priority of Johanna Sigurdardottir, Iceland’s new Prime Minister, since the interim government came to power earlier this month.

Lawmakers approved the Bill by 33 votes to 18, with 12 abstentions. It changes the structure of the central bank, giving it one governor and one deputy governor rather than the current three-person board. Oddsson has been the senior member of the board.

Ms Sigurdardottir said that she would announce the names of the interim central bank director and deputy director today.

The Bill needs to be signed by the President and formally registered before taking effect, a government spokesman said.

When Mr Oddsson served as Iceland’s longest service Prime Minister from 1991 to 2004, he was credited with stabilising the economy, taming inflation, slashing unemployment and creating the conditions for years of booming growth. But after the country’s economic collapse, Mr Oddsson and Geir Haarde, the Prime Minister, became the chief targets of public anger. Mr Haarde resigned in January.

Thousands of Icelanders lost their savings and jobs after the country’s once-booming financial sector crumbled in October, with the Government forced to take control of the three biggest banks as Iceland’s currency lost half its value.

The central bank has raised interest rates to a record 18 per cent in the wake of the crisis.

Mr Oddsson has been criticised by economists for the central bank’s failure to safeguard financial stability as well as ill-conceived measures embarked upon during the crisis. The most notable among these was the short-lived attempt to peg Iceland’s free-falling currency without anywhere near enough currency reserves.

The central bank was also forced to backtrack after initially declaring that Russia had granted Iceland a loan of €4 billion, a claim the Russians quickly denied.

Some 90 per cent of Icelanders do not have confidence in Mr Oddsson as central bank chief, a recent poll showed.

Ms Sigurdardottir called for the resignation of the central bank’s leaders earlier this month, but Mr Oddsson condemned what he described as government interference with the central bank’s independence.

IMF flies in

A mission from the International Monetary Fund was in Reykjavik yesterday as part of a regular series of meetings in the wake of the $2.1 billion loan made to Iceland so that it could avoid bankruptcy