The Icelandic government says it won’t now be suing Britain over the freezing of Landsbanki’s assets – but it will fund a legal challenge from Kaupthing.

Iceland was going to take the United Kingdom to court over the Treasury’s use of anti-terror legislation to freeze assets, but says it will fund legal action over the UK’s decision to put Kaupthing Singer & Friedlander into administration last October.

A US law firm plans to mount a judicial review of the KSF decision, which Iceland claims sparked the collapse of Kaupthing and its Manx sister company.

If successful, the challenge could see Kaupthing’s assets in the UK returned, and if that happened investors in the Douglas-based offshoot may get their savings back.