British and Dutch authorities have filed a £5.3bn claim in court in a bid to return cash to depositors whose money was held in the now defunct Icesave fund.
Landsbanki, which ran the Icesave account, was one of three Icelandic lenders, along with Kaupthuing Bank and Glitnir Bank, which collapsed in 2008 and eventually cost the government at least £52bn (€62bn, $85bn) - more than six and a half times its annual GDP.
Foreigners had used Icesave to take advantage of higher rates of interest offered through internet-based accounts.
Iceland's supreme court ruled in October of 2011 that savers should rank ahead of bondholders in the government's plans to repay the billions lost in the collapse.
The Icelandic Depositors' and Investors' Guarantee Fund (Tif) said it is incapable of meeting the compensation claims if their multi-billion pound suit, which was filed last year by the UK's Financial Services Compensation Scheme (FSCS) and the Dutch Central Bank , is successful.
"Should their claims be successful it is clear that the Tif will have difficulties in fulfilling its primary obligation of guaranteeing deposits in Iceland in the future. It should be noted that both the DNB and FSCS disbursed funds to depositors in their countries on their own initiative and without a request or consent of the TIF," said TIF.
The FSCS is funded by banks and building societies and other deposit taking institutions.
In January last year, Iceland was cleared by a European court for failing to pay the British and Dutch governments costs associated with rescuing Icesave customers.
The European Free Trade Association ruled that Iceland did not break depositor protection laws when it refused to cover the billions lost to 350,000 British and Dutch holders of so-called Icesave accounts.
Iceland's government had argued it was not liable to pay compensation for foreign savers and instead made arrangements for Landsbanki administrators to repay the lost deposits over time.
The FSCS recouped £2.4bn from the Landsbanki estate five years after its collapsed following the onset of the credit crisis.