US national security adviser Condoleezza Rice told Iceland on Wednesday that the planned withdrawal of US forces from the Keflavik base, announced in June, had been cancelled, he said.

Rice indicated that a decision on the base would instead be taken as part of an overall review of Washington's military presence in Europe, which could take months, he added.

In an interview with AFP, Oddsson attributed the change of policy to intervention from US President George W. Bush.

Oddson stressed, however, that this did not mean the base had won a permanent reprieve.

Foreign Minister Halldor Asgrimsson told AFP Thursday he was pleased that Washington was ready to "examine the nations' relationship in a historical perspective".

He said Iceland was dependent on American protection. "Iceland has no military and all future policy-making must take that into account," he said.

No timetable for further discussions was made public, but Oddsson made no secret of his pleasure at having driven a wedge between the US Defence Department and the White House.

"That the president of the US has put the issue on that course will now be known to both the State Department and the Department of Defense," he said.

The Icelandic government has been fighting the decision to withdraw US forces stationed at Keflavik under a 1951 mutual defence pact.

Such a move would leave Iceland without any air defences and affect thousands of Icelanders who depend on the American military presence for their livelihood.

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