It deposited the funds in an investment account with Glitnir in January but has said today (Thursday) that frontline services will not be affected by the Icelandic banking crisis.

Chief executive Andrew Muter said: "The council follows Government rules and guidelines when making investment decisions. At the time of the investment, the bank possessed a strong credit rating.

"We would like to reiterate that no money has been lost at this moment, and the crisis will not impact on council tax levels.

"Income from our investments helps to provide frontline services. This £2m is part of the council's reserves, mainly made up of capital receipts from the sale of council houses, and other capital receipts, which are deposited with a range of financial institutions, all of which have strong credit ratings."

Newark & Sherwood says all its investments were made according to a code of practice from the Chartered Institute of Public Finance and Accountancy, which was developed in partnership with the Government.

It is also backing the call by the Local Government Association to give local authorities assurances their money will be fully protected.