(CNN) -- Iceland will hold a referendum on whether to repay Britain and the Netherlands for the billions of dollars in loans they made to cover Iceland's bank losses, the country's government said Tuesday.
Iceland's parliament passed a bill last week authorizing a state guarantee for repayment of the loans, which allowed Iceland to repay minimum deposit guarantees to investors in Icelandic banks.
But after public pressure, Icelandic President Olafur Ragnar Grimmson refused to sign the law. He had received a petition Saturday signed by a quarter of Iceland's voting population urging him not to sign it, according to CNN British affiliate ITN.
It means the law must now be put to a general referendum as soon as possible. A simple majority is needed for the bill to pass.
The law would compensate Britain and the Netherlands by 2024 for the billions they loaned to Iceland after the collapse of Icesave and other Icelandic banks last year.
Britain loaned Iceland 2.3 billion pounds ($3.69 billion), ITV reported, and the Netherlands gave them 1.3 billion euros ($1.87 billion), according to Ruud Slotboom, a spokesman for the Dutch Finance Ministry.
Iceland reassured its creditors Tuesday that it remains "fully committed" to implementing the loan agreements despite the president's decision, according to a statement from the office of Prime Minister Johanna Sigurdardottir.
"The government views the loan agreements with the U.K. and the Netherlands as an integral part of Iceland's economic program, as a solution to the uncertainty regarding repayment of deposit insurance required under Icelandic law," the statement said. "It constitutes an important step towards normalizing the external financing of the country."
Britain and the Netherlands responded Tuesday with caution.
"The (British) Treasury will consult with colleagues in Iceland to understand why this bill has not been passed and will work with them, the Netherlands and within the (European Union) to resolve this issue as soon as possible," it said in a statement. "The U.K. government expects Iceland to live up to its obligations."
The Dutch government was "very disappointed" about the Icelandic president's decision, Slotboom said.
"We expect on short notice an explanation by the Iceland government about what the situation exactly is now (and) what steps they are going to take," he said. "The Dutch government thinks that Iceland still has the obligation to pay back the money, and it is not acceptable for us that there is no solution about Icesave."
The International Monetary Fund made loan repayment a requirement when its executive board approved a loan of $2.1 billion to Iceland in November.
Slotboom said it is "too early" to say how non-repayment of the loans by Iceland would affect the IMF's loan.