Mass protests have erupted on the streets of the Icelandic capital, Reykjavik, demanding the resignation of prime minister Sigmundur Gunnlaugsson after leaked documents show financial arrangements his critics say damage the country's reputation.

They gathered outside parliament in central Reykjavik for the action which saw them chant, bang drums, and wave bananas to signify the banana republic they fear they may be viewed as.

Amid some of the largest protests seen in the country since the 2008 financial crisis, opposition parties called a vote of no confidence for later this week. In addition, more than 26,000 people in Iceland or almost a tenth of the population have signed an online petition calling on Gunnlaugsson to quit. He is accused of hiding millions of dollars of investments in the country's banks, behind a secretive offshore company.

Gunnlaugsson denies wrongdoing and says that no rules were broken, and that neither he nor his wife benefited financially.

Video on twitter of the protests in Iceland Twitter

Details unveiled by the Panama Papers allege that Gunnlaugsson who has been prime minister of Iceland since 2013, of having ties to the offshore company, Wintris Inc, that he did not properly disclose. The papers say that he and his wife, Anna Sigurlaug Palsdottir, purchased Wintris from Mossack Fonseca in 2007.

Sigmundur Gunnlaugsson
Iceland's prime minister Sigmundur Gunnlaugsson is facing calls to resign over revelations from the Panama Papers Reuters

It was alleged the shell company was used to invest millions of dollars and that despite parliamentary rules, Gunnlaugsson did not disclose that he co-owned Wintris when he entered parliament in April 2009.

He told the Icelandic parliament he would not resign, saying to lawmakers: "I have not considered quitting because of this matter nor am I going to quit because of this matter.

"The government has had good results. Progress has been strong and it is important that the government can finish its work," AP reported him as saying.