Reykjavik - Icelandic police Tuesday used tear gas to disperse protesters outside parliament during its first session for the year, broadcaster RUV reported.

Iceland has experienced a wave of protests since October when the country's three banks were nationalized when they faced collapse in the wake of the global credit crunch.

The North Atlantic nation of some 320,000 people is facing a severe contraction of its economy with unemployment due to rise sharply.

A paper prepared by the finance ministry said unemployment had reached 1.7 per cent in the fourth quarter 2008, and was predicted to increase this year to 7.8 per cent.

Fresh figures from the Directorate of Labour suggest that unemployment among the youth - 16 to 24-year-olds - was rising more rapidly than among older workers.

Interest rates are at 18 per cent and the country recently secured a 2.1-billion-dollar bridging loan from the International Monetary Fund. (dpa)