LONDON (AP) - Britain's local government authorities are planning to ask for temporary tax breaks from the national government as they brace for potentially huge losses on funds placed with now-failed Icelandic banks, the Local Government Association said yesterday.

More than 20 local government authorities put hundreds of millions of dollars worth of taxpayers' money in Icelandic banks. This money is now at risk after Iceland's largest lenders have collapsed amid the global financial turbulence, the umbrella association of local government councils announced on Wednesday.

The councils with money in troubled Icelandic banks include Kent County Council, with £50 million ($87 million) invested, Westminster City Council with 17 million pounds ($29 million), and Havering City Council with £12.5 million ($21.7 million).

In the past week, Iceland's government has seized control of all three of the country's biggest banks - Kaupthing, Landsbanki and Glitnir - after Prime Minister Geir Haarde warned that the country was at risk of "national bankruptcy". Landsbanki and Glitnir are both now in receivership.

One of the reasons that so many British councils had deposited their money into Icelandic banks was because they were offering relatively high interest rates compared to other countries' A-rated banks.

On Wednesday, the Local Government Association asked the Treasury to guarantee that all the councils' Icelandic investments would be fully protected by the government. So far, the government has failed to comply with the request, although Chancellor Alistair Darling announced he will protect the savings of the nearly 500,000 private British investors in Icelandic banks.

The councils' association yesterday asked the government for temporary tax breaks - last granted during the foot-and-mouth farming crisis - to give their members financial breathing room.

However, while local councils have put large sums of money in Icelandic banks, the councils' association said that because its members had spread their investments across numerous international and domestic institutions, the total percentage of taxpayer money at risk was small.

"Of course the government does understand the situation that they (the councils) are in," Prime Minister Gordon Brown's spokesman Michael Ellam said yesterday. "We have had difficulty in getting complete clarity from the Icelandic authorities in recent days about the position of all UK depositors in Icelandic banks."

But Mr. Ellam said Britain hoped to hold constructive talks with Icelandic officials to reach a deal on the issue.

Each year, councils spend £106 billion ($184 billion). So even if £400 million ($693 million) is at risk - a figure at the very top of current estimates - that is still much less than one percent of the councils' annual spending total.

"Councils have been burned from putting their eggs in one basket before," said Local Government Association spokesman Richard Stokoe. "So now they spread their investments in hundreds of A-rated institutions."

"As a result, we believe that there won't be liquidity problems for the vast majority of councils," he added.