(Adds size of loan, comments on mediator role, background)
By Omar Valdimarsson and Aasa Christine Stoltz
REYKJAVIK/OSLO Nov 3 (Reuters) - Norway said on Monday it would give crisis-hit Iceland a 500 million euro ($644 million) loan and is willing to act as mediator in a row with Britain sparked by the meltdown of Iceland's banks.
Norway's finance ministry and central bank said in separate statements that the loan would have a maturity of up to 5 years, and that Norway would also extend an existing forex swap agreement through 2009.
On a visit in Reykjavik, Norwegian Foreign Minister Jonas Gahr Stoere said it was "essential" for Iceland to stabilise its all but collapsed crown currency.
"We want to show our support for the international initiative and we will be providing support to Iceland in the near future," Stoere told journalists on Monday after meeting Icelandic Prime Minister Geir Haarde in the Icelandic capital.
Iceland, an early victim of the global financial crisis, has already reached a tentative deal with the International Monetary Fund for a $2 billion loan and has been talking to other potential lenders including Russia and the European Union as it tries to fix a broken financial system and revive its economy.
The IMF loan still needs approval by the fund's board.
In May this year, Norges Bank and Iceland's Sedlabanki agreed on a swap facility that gave Sedlabanki the right to acquire 500 million euros when it needed. The Icelandic central bank has drawn 200 million euros from this agreement.
UK ROW MEDIATION?
Haarde said he had suggested to Norway, which is well-known on the international stage as a peace negotiator, that it mediate a diplomatic row between Iceland and Britain.
The conflict erupted last month after Britain used anti-terror legislation to seize UK assets of collapsed Icelandic bank Landsbanki in a bid to protect British depositors.
Three of Iceland's four biggest banks, which had extended their reach well outside the island nation's borders in recent years, were taken over by Iceland during the financial crisis.
"I'm taking no stance on the disagreement between the two countries but should Britain and Iceland want us to act as brokers we will not say no," Stoere said.
Haarde said Norwegian Prime Minister Jens Stoltenberg had also responded positively to the idea of Norway playing moderator.
He said Britain's minister for Scottish Affairs, James Murphy, who is visiting Reykjavik, had been "relatively positive"towards the idea and that Murphy and Stoere would discuss the matter later on Monday.
(Writing by Anna Ringstrom in Stockholm)
(Reporting by Omar Valdimarsson via Stockholm Newsroom)