Reykjavik - The president of Iceland was in talks Tuesday with party leaders to determine who would lead an interim government after the collapse of the ruling coalition.

On Monday, Prime Minister Geir Haarde handed in his government's resignation, saying the grand coalition formed in 2007 between his conservative Independence Party and Social Democrats had ended.

Haarde on Friday said his party recommended early elections on May 9, two years before schedule, but protesters that have staged daily protests since last week have demanded elections even sooner.

Odds were on a minority government including the Social Democratic Alliance and the Left-Green Movement until new elections are held.

The Left-Green Movement has surged in opinion polls as the effects of the global financial crisis has continued to impact the North Atlantic nation of some 320,000 people.

The economy is facing severe contraction and unemployment is due to rise sharply.

Interest rates are at 18 per cent and the country recently secured a 2.1-billion-dollar bridging loan from the International Monetary Fund
(IMF).

Mark Flanagan, mission chief for Iceland at the IMF, said in a statement after Haarde's resignation that "an IMF programme supports good policies, not particular political parties or coalitions."

"As long as appropriate policies are in place in Iceland, such support can continue. A mission will visit Iceland in mid-February to conduct the next review under the programme," he added.

Haarde, 57, last week said he was suffering from cancer and was to step down as leader of the Independence Party at the party conference in March. (dpa)