Norway is to give Iceland a loan of 500 million euro ($US644 million) to help it through a financial crisis.
In separate statements on Monday, the finance ministry and central bank said that the loan would have a maturity of up to five years and that Norway would also extend an existing forex swap agreement through 2009.
On a visit in Reykjavik, Norwegian Foreign Minister Jonas Gahr Stoere said it was "essential" for Iceland to stabilise its currency.
Iceland is an early victim of the global financial crisis. It has reached a tentative deal with the International Monetary Fund for a $US2 billion loan.
Three of Iceland's four biggest banks were taken over by the state during the financial crisis.