Up to £8 million of Bristol taxpayers' money is at risk in Iceland's banking crisis.

That's how much could be lost by Bristol City Council after two of the country's leading banks collapsed.

The council is one of at least 100 local authorities across Britain exposed to the latest round of the world-wide credit crunch.

But last night it said services and capital projects were not under immediate threat.

The council said its loans to Landsbanki and Glitnir banks were part of a "prudent spread" of investments totalling £200m.

It said the Icelandic banks, which have just been nationalised, had cash-flow problems but were solvent and "asset-rich".

"If these cash-flow problems can be worked out, we can access all or part of our money at an early stage," said council spokesman Simon Caplan.

Yesterday the Bristol Evening Post revealed North Somerset Council has £3 million deposited in Landsbanki. South Gloucestershire and Bath and North-East councils are not affected.

Local authority leaders across the country were yesterday pressing the government to protect their deposits in the way it has already promised for personal savers.

But the Local Government Association said services were not at risk. In Bristol, the council said it was "calmly monitoring" the situation.

"It's far too early to start painting a worst-case scenario," said Mr Caplan.

The council said its investments in Iceland had been made in accordance with the council's treasury management policy and procedures, which it said were prepared with independent professional advisers and approved by the council's external auditors.

A statement said: "At the time the loans were made, both banks had satisfactory credit ratings.

"There is no immediate threat to the council's financial operations."

Liberal Democrats yesterday accused the Labour-led council of "playing fast and loose" with public money.

Councillor Tim Kent, the Lib Dems' leading spokesman for resources, will be demanding an inquiry at today's meeting of the council's resources scrutiny commission.

Mr Kent said: "To be making these short-term investments in Iceland's banks was beyond incompetent.

"It is disgraceful that the Bristol taxpayers will have to pick up the tab."

Tory councillor Geoff Gollop, who chairs the commission, said the council seemed to have stuck to its own financial regulations.

But he sought assurances "that the inaccessibility of such a large sum will not adversely effect frontline services".

Councillor John Bees, who is in charge of city council spending, said: "I can assure people that there is no immediate threat to the council's financial operations.

"It is too early to say what the long term impact will be.

"Bristol has for years made investments with a wide range of banks in order to gain income and keep down the level of council tax.

"These investments are government approved and in line with internal policies agreed by all parties.

"Any councillor of any party can challenge these investments at any time and no such challenge has ever been made."