June 8, 2015 / 1:36 AM / 2 years ago

UPDATE 2-Iceland paves way for lifting of capital controls

(Updates after parliament passes bill)

REYKJAVIK, June 8 (Reuters) - Iceland's parliament voted late on Sunday in favour of measures paving the way for the country's centre-right government to announce on Monday it will end capital controls imposed seven years ago during the global financial crisis.

Parliament voted 56-0 with one abstention to tighten controls to prevent them being circumvented before the plan to abolish them is unveiled.

Capital controls have been in place in the North Atlantic island nation of 330,000 people since 2008, when Iceland's three main banks - Glitnir, Landsbanki and Kaupthing - collapsed, sending the economy and the Icelandic crown into meltdown.

The measures passed on Sunday include restrictions on transactions made with money connected to the estates of the failed banks. An assistant to the prime minister earlier described the moves as a precaution before the opening of financial markets on Monday.

Prime Minister Sigmundur David Gunnlaugsson and Finance Minister Bjarni Benediktsson will make an announcement on the lifting of capital controls on Monday at a press conference in Reykjavik at 1200 GMT, according to an invitation sent to media by a public relations firm on behalf of the government.

The central bank has said the book value of the assets of the failed banks that are denominated in Icelandic crowns is about 500 billion crowns ($3.75 billion), corresponding to roughly a quarter of the country's gross domestic product.

With the economy starting to return to normalcy, Iceland has been planning for some time to remove the capital controls, which have stunted investment, while avoiding a new run on the crown that could hurt the economic recovery.

The government has said it plans to impose a tax on any debt recovered from the failed banks that investors take out of Iceland, to stem outflows and reduce the risk of the crown plunging again.

$1 = 133.2300 crowns Reporting by Ragnhildur Sigurdardottir; writing by Sven Nordenstam; editing by Leslie Adler and Cynthia Osterman

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