* Crown stable but well below acceptable level - cbank
* Cbank holds rates, says would raise them if needed
* Says will not jeopardise crown stability
* Sees economic risks if Icesave issue is not solved
(Adds central bank governor quotes)
By Anna Ringstrom and Mia Shanley
STOCKHOLM, Aug 13 (Reuters) - Iceland's central bank said on Thursday it would not jeopardise the stability of the crown and highlighted risks should parliament fail to approve a deal with Britain and the Netherlands on funds lost in Icelandic bank accounts.
The Sedlabanki also left its key interest rate unchanged at 12.0 percent for the second month in a row, citing concerns about the weak krona currency which it said was trading below levels considered "acceptable".
The bank, which has slashed rates from a high of 18 percent in the past half year, said it could even raise them if needed.
Iceland is preparing to start lifting strict capital controls imposed after its financial crisis last year so that it can get its economy back on a more normal footing.
"The MPC (Monetary Policy Committee) will avoid any moves that could call into question its overriding commitment to the stability of the krona and low inflation," central bank Governor Svein Harald Oygard said.
"In this way, monetary policy can contribute to the restoration of confidence that is a prerequisite for the eventual abolition of the capital controls. This could imply raising interest rates if conditions call for it."
The crown has lost nearly half its value against the euro since before the crisis erupted in October, although the capital controls have limited international trade.
The interim central bank chief, who steps down next week, drew a direct link between the controversial Icesave bill which is now stuck in parliamentary committees and much-needed funds from the International Monetary Fund and other lenders.
This was the first such public statement by an Iceland official, suggesting IMF money was contingent on resolution of the Icesave affair.
"There are a number of players who have stated that loans will not be provided if Icesave is not approved," he said.
Iceland's government has proposed repaying Britain and the Netherlands after they reimbursed savers who lost money in Icelandic deposit accounts last year. But the "Icesave bill" has caused a storm of discontent.
If the bill fails, Iceland would not be able to build up sufficient reserves so that it can lift its capital controls as planned, Oygard said.
"So we will look forward to a pretty lengthy delay if things were to be brought to a halt," he said. "I think the impact of that on the Icelandic economy will be very unfortunate."
A revised bill is not expected to be put forward to parliament until next week at the earliest.
Research firm 4Cast said it seemed premature to speak of raising rates, particularly with significant risks to the country's economic and financial outlook.
"Nevertheless, hawkish talk to this tune should help to support ISK (the Icelandic crown) and restore confidence within the wider market sphere," it said in a note.
STILL CAUTIOUS
Oygard said capital outflows had dramatically eased in recent months but that the central bank remained cautious before a phased removal of the controls.
"The main reason the currency has remained weak lately seems to be that exporters are keeping their money in euros," said Petter Sandgren, head of emerging markets at SEB.
Prime Minister Johanna Sigurdardottir and her Social Democrats are keen to get Iceland on a path to joining the euro after last year's crisis toppled its main banks.
The nation applied last month to start talks with Brussels on membership in the European Union, although Icelandic voters will have the final say.
Beat Siegenthaler, analyst at Toronto Dominion Securities, said Iceland had made progress on bank restructuring but that the Icesave problem remained thorny. "There's just too much still unsettled in Iceland at this point," he said.
Iceland's economy is seen shrinking more than 10 percent this year as unemployment and household debt soars. The finance minister expects the jobless rate, close to zero when the economy boomed, to reach 9.0 percent this year. (Editing by David Stamp)
(Additional reporting by Veronica Ek)