Reykjavik - Iceland's largest bank group Kaupthing was Thursday taken over by the Icelandic Financial Supervisory Authority.

Kaupthing was the third of the North Atlantic nation's major banks to be taken over by the agency under provisions of special legislation adopted late Monday.

Earlier this week the agency took over Landsbanki and Glitnir.

Kaupthing's domestic deposits were "fully guaranteed" and domestic operations were to remain open for business as usual, the agency said adding that the move was "guarantee a functioning domestic banking system."

A week ago, the government of Iceland bought a majority stake in Glitnir bank, paying 600 million euros (815 million dollars) for a 75-per-cent stake.

Kaupthing on Tuesday said it had secured a 500-million-euro loan from the Icelandic central bank.

The commercial banks in the island nation of 300,000 people have rapidly expanded their operations in recent years.

Prime Minister Geir Haarde earlier this week noted that "their liabilities are now equivalent to many times Iceland's GNP."