Iceland election: Ruling party ahead in early results

Ms Jakobsdóttir says she wants to use Iceland's economic boom to fund investment

Iceland's main centre-right party looks set to remain the largest in a snap election called after a scandal over a paedophile toppled the coalition.

Despite significant losses, PM Bjarni Benediktsson's Independence Party is ahead of the Left-Green Movement as votes are counted.

But with other coalition parties losing ground it was still unclear who would get a mandate to form a government.

Iceland's second snap election in a year was held amid deep voter distrust.

The row that brought down the government erupted after it emerged that Mr Benediktsson's father had written a letter saying the paedophile should have his "honour restored".

Most of the parties say investment is needed in welfare, infrastructure and tourism but disagree about how to fund it.

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With more than half of the votes counted:

• The Independence Party has about 25%. It has said it wants to fund infrastructure spending by taking money out of the banking sector. It has been part of every ruling coalition since 1980, except during the 2009-2013 economic crisis

• The Left-Green Movement is on 17%. Led by 41-year-old Katrín Jakobsdóttir, it wants to use the country's economic boom to fund investment and restore trust in government

• The Social Democratic Alliance is on course to almost double its vote share with nearly 13%, potentially giving it a key role in coalition talks

Former PM Gunnlaugsson (L) and Mr Benediktsson are standing despite their respective controversies

The furore over Mr Benediktsson's father's letter relates to an old Icelandic system allowing convicts to have certain civil rights restored if three letters of recommendation from persons of good character are provided.

Icelanders were furious at the secret backing for Hjalti Sigurjón Hauksson - convicted in 2004 of raping his stepdaughter almost every day for 12 years from when she was five. He served a five-and-a-half-year jail term.

The government has also been accused of an attempted cover-up after it refused to disclose who had written the letter of recommendation.

The Bright Future party said it was quitting the three-party coalition over the "serious breach of trust". It now appears likely to lose all of its four seats.

The island of 340,000 people was one of the countries hit hardest by the 2008 financial crisis but has turned its economy around by focusing on tourism.

Last year a tax haven scandal forced the then prime minister to resign.

Leaked information from Panama-based law firm Mossack Fonseca showed at the time that PM Sigmundur Gunnlaugsson owned an offshore company with his wife, but had not declared it.

Mr Gunnlaugsson has denied wrongdoing and is standing in the current election with his new Centre Party.