A planned Royal Air Force mission to police Iceland's airspace has been called off amid a diplomatic feud triggered by the global financial crisis, Britain and Iceland said Friday.

British aircraft were due to be sent to a base near Reykjavik next month, as part of a plan that sees NATO members take it in turns to defend Iceland's airspace. The tiny island nation has no military force of its own.

Iceland's foreign minister, Ingibjorg Solrun Gisladottir, said NATO had decided the mission would not take place.

Britain's Defense Ministry confirmed in a statement that "following consultations in NATO, and in agreement with Iceland, the deployment will not now take place in December."

It was not immediately clear whether another NATO member would undertake the largely symbolic mission.

Relations between London and Reykjavik plummeted last month after Britain used anti-terrorist legislation to freeze the assets of collapsing Icelandic banks in a bid to protect British savers' deposits.

Iceland complained to NATO about the move and has said it is considering legal action against Britain.

An online petition set up under the heading "Icelanders are not terrorists" has drawn the signatures of 80,000 people, a quarter of Iceland's population.