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LONDON, Jan 5 (Reuters) - Iceland would cut itself off from global financial assistance if its people vote not to compensate Britain and the Netherlands for losses caused by the collapse of Icelandic bank Icesave, Britain's financial services minister Paul Myners said on Tuesday.

Britain and the Netherlands are seeking more than $5 billion from Iceland which they paid in compensation to their domestic depositors after Icesave's failure in 2008, but Iceland's President Olafur Grimsson vetoed a parliamentary bill which approved this.

Grimsson's decision earlier on Tuesday will likely trigger a referendum in the North Atlantic island where a quarter of voters have already signed a petition calling for the deal to be scrapped.

Myners told the BBC that if Iceland voted against the deal, it would cut itself off from the global financial system and from International Monetary Fund aid for its economy, one of the worst hit by the world bank crisis.

'The Icelandic people, if they were to reach that conclusion, would effectively be saying that Iceland does not want to be part of the international financial system, that Iceland doesn't want to have access to multi-national, national and bilateral funding and doesn't want to be regarded as a safe counter-party with whom to do business,' Myners said.

(Reporting by Avril Ormsby and David Milliken) Keywords: ICELAND ICESAVE/BRITAIN MYNERS

(Reuters Messaging: david.milliken.reuters.com@reuters.net; david.milliken@reuters.com; +44 20 7542 5109)

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