Reykjavik - Protests against the financial crisis in Iceland continued overnight Wednesday with protesters lighting bonfires outside parliament, broadcaster RUV reported.

Some 1,000 protesters set fire to a Christmas tree outside the parliament building and also added park benches and sticks to some bonfires.

Police used mace and batons to disperse the protesters, who did not disperse until around 3 am (0300 GMT), the report said, adding that four people were arrested.

The demonstration was believed to have been the largest since 1949 when protests were staged against Iceland joining NATO.

Police earlier Tuesday used mace against protesters who assembled at the parliament building when parliament met for its first session after the New Year.

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.

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