An urgent meeting with chancellor Alistair Darling has been called for by local authority leaders after it emerged that at least twenty councils have cash in troubled Icelandic banks.

The investments run into hundreds of millions of pounds and they are asking the UK government for the protection it has promised to personal savers. The Conservatives have warned that up to £1bn in council funding could potentially be in danger, however the Local Government Association (LGA) said services were not at risk.

The Treasury said it was looking into the issue of protection for councils but has given no guarantees over the money.

The LGA represents councils in England and Wales. It says that 20 councils have been identified that are believed to have deposits in the collapsed Icelandic bank Landbanksi or its UK arm Heritable.

They include Kent County Council, which has £50m invested with Icelandic-based banks. The LGA is still trying to work out the total amount involved, but believes that, aside from Kent, many of the councils had investments that number in “single figure millions of pounds” but others had deposits “running in the low tens of millions”.

John Ramsford chief executive of the LGA dismissed the Conservative claims of the amount of money at risk. However, he said that the amount of public money at stake was “significant” and must be protected.

“This is public money and we need to treat this in exactly the same way as individual investments in these banks,” he said.

The amount of money varies by County, but some figures have been confirmed;

Westminster City Council: £17m
Sutton Council: £5.5m
Havering Council: £12.5m
North Lincolnshire Council: £5.5m
North East Lincolnshire Council: £2.5m
Hertfordshire County Council: £17m
Buckinghamshire: £5m
Cornwall County Council: £5m

Boris Johnson, the Mayor of London, revealed that Transport for London had £40m deposited in one of the affected banks.

“We are looking to see what redress we can find,” he said.

The Conservatives have warned that town halls could face “massive financial shock” and are likely to enforce council tax hikes or cuts in local services.

Eric Pickles, the party’s shadow secretary, said it will be tough times for councils: “They are not going to find it easy in the short term”.

He added: “We need to look at the number of authorities that will be facing a cash-flow problem - some have their payroll on this, for others it’s in terms of long-term investment.”

The LGA insisted that councils involved had enough money to ensure that frontline services are unlikely to be affected, but it would be happier if councils had the same level of protection as personal customers of Icesave and other failed Icelandic banks.

The prime minister has said that legal action will be taken over Iceland’s failure to guarantee compensation for UK customers in its banks.

Iceland’s prime minister Geir Haarde said his government was working to repair relations with Britain amid the crisis.