Oslo/Reykjavik - Norway on Monday said it was prepared to consider extending a loan to cash-strapped Iceland, provided the International Monetary Fund (IMF) approves a 2.1-billion-dollar loan later this week.

The central bank of Norway said it has also extended a swap facility worth 500 million euros (630 million dollars) to the Icelandic central bank, or Sedlabanki.

The current loan agreement was signed in May and was due to expire in December, but will be extended to December 2009, Norges Bank said.

The Norwegian central bank also recommended that Iceland be approved to get a long-term loan worth 500 million euros from Norway. That hinged on approval from the Norwegian parliament, and also that the IMF board approves the 2.1-billion-dollar loan.

Norwegian Finance Minister Kristin Halvorsen welcomed the recommendation by the central bank board, and said Oslo was prepared to draft legislation to approve the new loan that would mature in four, five years.

Last month, Iceland signed a tentative deal with the IMF but the North Atlantic nation needs a further 4 billion dollars according to Prime Minister Geir Haarde.

A week ago, Haarde briefed Norway and other Nordic neighbours at a meeting of Nordic prime ministers and finance ministers in Finland.

Norwegian Foreign Minister Jonas Gahr Store was Monday in Iceland for talks with Haarde and other officials.

While saying the financial collapse in Iceland was "man-made" and something "Iceland had to take responsibility for," Store added that it was important to help "a neighbouring country," Norwegian news agency NTB reported.

Store also said it was crucial that other countries that were willing to Iceland should "signal that soon." (dpa)