Huge crowds poured into the square outside parliament in Reykjavik yesterday calling for Sigmundur David Gunnlaugsson to step down over financial records showing that he and his wife bought a company in the British Virgin Islands in 2007.
He sold his 50-percent share to his wife Anna Sigurlaug Palsdottir for a symbolic sum of one dollar at the end of 2009.
But when he was elected to parliament for the first time in April 2009, as a member of the centre-right Progressive Party, he neglected to mention his stake in his declaration of shareholdings.
The issue is particularly sensitive in Iceland, a country marked by the excesses of the 2000s when senior bankers used shell companies in tax havens to conceal their dealings in risky financial products.
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Police said the crowds that turned out in Reykjavik on last night outnumbered the thousands who in 2009 brought down the right-wing government over its responsibility in Iceland's 2008 banking collapse.
Iceland's big banks collapsed in October 2008 after borrowing beyond their means to fund ambitious investments abroad. Before their collapse, their liabilities were worth more than ten times Iceland's total GDP.
Gunnlaugsson, a former journalist, insists that despite the financial turbulence he was never tempted to move his money offshore and that his wife paid all her taxes in Iceland.
"She has neither utilised tax havens nor can you say that her company is an offshore company," Gunnlaugsson said on his website.
In an interview with Swedish public television SVT recorded last month, excerpts of which were aired in Iceland on Sunday, he became visibly upset after being repeatedly asked about his wife's company, eventually storming out of the room.