The authority today confirmed it held £9m in the country's collapsing financial sector and is one of several council's nationwide with cash salted away there.

Council chief executive Joanne Roney said front-line services would not be immediately affected.

She added: "These are exceptional times for the financial sector worldwide and we are currently assessing the impact on services of the recent developments with Icelandic banks.

"Wakefield Council has £9m with Icelandic banks which was invested at a time when their credit ratings were highly ranked and there was no suggestion of any risk.

"It is normal practice for the public sector to hold deposits in overseas banks.

"We are working with the district's MPs to resolve the situation."

Government chancellor Alistair Darling announced yesterday that the government would guarantee all private savings in Icelandic banks Kaupthing Edge, Icesave and Heritable Bank.

But guarantees for local authorities and businesses that have money in the banks were not secured.

Ms Roney added that all investments were made in accordance with strict procedures laid down for local government finance management.

She said: "Until the situation is more stable no other investments will be placed for periods beyond March 2009, with the focus being on short term investments and maximum security.

"No investments will be placed other than with UK banks or Irish banks covered by guarantee.

"The situation regarding all our investments is being constantly monitored in order to minimise our exposure to financial losses."