Northumberland County Council's new chief executive, Steve Stewart, gave reassurances following crunch meetings with Government and other councils.

The authority has around £140million in its overall portfolio, and says the £23million is part of its short term cash balances.

All of the investments were taken out in line with the Council's Treasury Management Policy Statement and took the prevailing positive credit ratings, prior to the so-called Credit Crunch, into account.

Mr Stewart said: "Like council tax payers across the country, Northumberland residents may be concerned about investment in Icelandic banks.

"The £23m is spread across four banks. It is early days, and there remains much uncertainty over the individual financial position of each bank, so we just can't speculate on what the precise financial impact will arise from this developing situation.

"However, I can reassure residents that the situation with Icelandic banks will not cause either an increase in council tax or service reductions. The County Council can and will continue to operate normally.

"Like individual savers and other institutions, councils are required to make sure its revenue works hard. This means investing, as well as making sure we have money put aside for a rainy day."

He added: "We have therefore invested in line with national guidance and on professional advice, and are required to spread our investments so our eggs are not all in one basket.

"Of course, these investments in positively rated banks were made before the credit crunch crisis.

"We are now adjusting our financial forecasting to reflect the potential loss. This will still leave us with surplus cash to invest, and operate as usual. Local government reorganisation will be unaffected, even if the worst case scenario happens.

"Our financial management has done exactly what it is supposed to do, spreading the risk, and allowing us to continue as usual."

The Government and the Local Government Association (LGA) are working together so the impact can be fully understood, and when this information is available the position for Northumberland can be assessed fully.

The County Council says it was forecasting to over-achieve interest receivable in-year, and this position will be revised to reflect the potential loss of interest in year.

The investments are due to be returned over the period December-February, but the Council will still have surplus cash balances to invest.

The Council's financial position will allow for routine revenue and capital expenditure, and the Council will and can continue to operate normally.