The district council is one of more than 20 councils in the UK that has large sums of money invested in the Icelandic bank Landbanksi or its UK branch Heritable.

Speaking as prospective parliamentary candidate for Lincolnshire, Coun O'Connor said doubt hung over the £2.2m earmarked for town centre regeneration and £4.2m for the Market Rasen leisure centre.

"If we don't get the money back, it's going to be a complete and utter body blow for regeneration in Gainsborough and the town," he said. "As with all projects, you have to keep the momentum going, and with the current financial crisis as it is progress is going to be stalled."

He added that the money budgeted for the two schemes was wrapped up in Icelandic banks and said this investment decision had happened 'on the Conservative's watch'.

"It's a large amount of money for a relatively small authority," he said. "Council services will probably remain unaffected initially, but if the situation gets worse council taxes will have to be put up or money borrowed, but this will have to be paid back - with interest."

"People in Market Rasen will lose out on leisure facilities and Gainsborough town will also suffer," he added.

"It's about bringing more people in to the town centre and keeping businesses alive - this is why regeneration is so important."

For more background to the Icelandic bank crisis click here