Iceland’s embattled prime minister, Sigmundur Davíð Gunnlaugsson, has become the first major casualty of the Panama Papers, tendering his resignation in the wake of a mounting political crisis over his family’s offshore investments.

A mass protest planned in Reykjavik later on Tuesday turned to celebration as Icelanders vented their anger at the outgoing prime minister following revelations that he had once owned – and his wife still owns – a secret offshore investment company with multimillion-pound claims on Iceland’s failed banks.

The agriculture and fisheries minister, Sigurður Ingi Jóhannsson, told state broadcaster RUV that Gunnlaugsson was resigning as prime minister and that he would be replacing him. Gunnlaugsson will, however, stay on as head of his Progressive party, Jóhannsson said.

The move requires the approval of both Gunnlaugsson’s junior coalition partner, the rightwing Independence party, and Iceland’s president, Ólafur Ragnar Grímsson. It was not immediately clear how the country’s other parliamentary parties would react. Early elections could still be a possibility.

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