Oct. 9 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling used anti-terrorism rules to take control of assets held in Britain by a troubled Icelandic bank.

Darling stepped in to protect deposits made by U.K. residents in Reykjavik-based Landsbanki Islands hf, which the government of Iceland seized yesterday. About 300,000 U.K. account holders held deposits at Landsbanki's Internet bank, Icesave.

``To protect U.K. economic interests the government has frozen the funds and financial assets held by Landbanksi,'' Stephen Timms, financial secretary to the Treasury, said in Parliament in London today.

Icesave yesterday blocked customers from accessing deposits at its online bank. The U.K. Treasury said it will guarantee all customer deposits at Icesave, even those above the Britain's 50,000-pound ($87,800) deposit protection plan.

The Treasury released a document to Parliament yesterday showing it used sections of the Anti-terrorism, Crime and Security Act 2001 to take control of the bank's assets, saying in the statement the bank's collapse may harm the U.K. economy.

``The reason we took this action which was extraordinary action was in order to protect the interest and to try to ensure there was money there for creditors and depositors in the U.K,'' Prime Minister Gordon Brown's spokesman, Michael Ellam, told reporters in London today. ``In the view of the chancellor there was clearly a potential systemic risk, and that is why the action was taken yesterday in relation to depositors.''

Lawmakers in Parliament's upper House of Lords today debated the new Counter Terrorism Bill. Some lawmakers have said the rules would curb the civil liberties by extending the time police can detain terrorism suspects without charging them for up to 42 days. The Lords vote on the plan on Oct. 13.

To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.netGonzalo Vina in London at gvina@bloomberg.net

Last Updated: October 9, 2008 09:09 EDT