Prime Minister Gordon Brown Thursday termed "effectively illegal" the actions of the Icelandic government over British deposits and investments blocked in the country's nationalized banks.

In a BBC interview, Brown said the British government was in urgent talks with Iceland over the risk to British money frozen in Icelandic banks and would "take further action if necessary."

Iceland regulators had failed "not only the people of Iceland, they have failed the people of Britain," Brown said.

Britain would continue to freeze Icelandic assets, said Brown. "We will take further action against the Icelandic authorities wherever that is necessary to recover money," said Brown.

Iceland's Prime Minister Geir Haarde Thursday criticized as "unpleasant" the British asset freezing, which he said were carried out under anti-terrorism laws.

Brown's remarks followed urgent talks between Treasury officials and leaders of local councils Thursday over fears that more than 850 million pounds (1.4 billion dollars) of public sector investments could be at risk.

A joint statement issued after the meeting said council authorities facing "severe difficulties" after investing in collapsed Icelandic banks would receive "appropriate" assistance.

The Local Government Association (LGA), representing councils from all over Britain, had demanded guarantees on their investments similar to those given to private savers holding deposits in Icelandic banks in Britain.

Councils look after community services from schools, policing, swimming pools, care homes and rubbish collection.

The crisis escalated Thursday when it was revealed that 15 police authorities, including London's Metropolitan Police, were affected with total investments of 100 million pounds.

Earlier Thursday, Transport for London (TfL), the local government body responsible for London's transport system, said it had deposits of 40 million pounds in Kaupthing Singer & Friedlander Ltd, whose parent company was nationalized by the government in Reykjavik.

Kent Council, in southern Britain, has invested 50 million pounds in British branches of Icelandic banks and Westminster Council in the heart of London - including its government quarters - has placed 17 million pounds in Icelandic institutions.

Council leaders have said they followed government instructions to "spread risks around" when they made their investment in Icelandic institutions.

The opposition Conservative Party has estimated that the total of the investments of public sector bodies in Icelandic subsidiaries could reach 1 billion pounds.

The government has pledged full compensation to up to 300,000 British savers holding deposits in Iceland internet bank Icesave.