After days of uncertainty amid rising public disaffection, Iceland's coalition government collapsed on Monday, plunging the island nation into political turmoil. The Icelandic economy has been tottering since October sparking social unrest and widespread disillusionment with the economic system that has left the population facing dire economic hardship (See: Iceland headed for bankruptcy; PM seeks $5.44-billion Russian loan). 

The value of the country's currency, the krona, has plunged, leaving many Icelanders who had taken out special loans denoted in foreign currencies in deep debt. Iceland has also to make billions of dollars in repayments to Europeans who held accounts with subsidiaries of collapsed Icelandic banks (See: Iceland's Kaupthing Bank to sue UK government)  

Prime Minister Geir Haarde, leader of he Independence party resigned, dissolving the government he had led since 2006. He rejected demands of the Social Democrats, coalition partners who wanted to see a new prime minister installed in exchange for keeping the coalition going.

Haarde's government had nationalised banks and negotiated loans totaling about $10 billion from the International Monetary Fund and individual countries (See: Iceland to get $6 billion from IMF, Europe).

Haarde, who is suffering from cancer, has announced he would not be seeking another term.

He called early elections last week in the wake of growing protests, rising unemployment and soaring prices.

Jubilant protesters celebrated the fall of the coalition government outside the Althing, the Icelandic parliament. However an uncertain future looms over the country in the backdrop of the shattered economy that will likely takes years to rebuild.

Meanwhile the focus has shifted to Iceland's figurehead President Olafur Raganar Grimsson who has said to he would hold talks with Iceland's other four major political parties. He is expected to ask one of them to form an interim government.

He is likely to ask foreign minister Ingibjorg Gisladottir who heads the Social Democratic Alliance to form an interim government with smaller opposition parties till the new elections are held. Gisladottir has indicated her willingness to be part of a national government jointly formed by the country's five major political parties.

According to analysts the Green Party could be one of the key beneficiaries of the political turmoil. It has seen popularity double as a growing number of Icelanders seem to be turning their back on the failed economic model.

Latest polls put the Green Party way ahead of both the erstwhile coalition partners.