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The Cyprus cabinet was meeting in crisis session Thursday to approve a "Plan B" bailout deal with the EU and IMF, as a nervous crowd gathered outside parliament expecting the plan to be put to a vote.
The island's politicians have until Monday to clinch a deal with the lenders or face being choked from European Central Bank emergency funds, a move that would be likely to cause the teetering banking sector to collapse.
The government urged against panic while it redrew the plan to resolve the chaos unleashed by an initial scheme to tax bank accounts -- many of them Russian -- by 5.8 billion euros ($7.47 billion) to complement 10 billion euros in eurozone and IMF loans between now and 2016.
Part of the new package involves setting up a "national solidarity fund," which media reported would nationalise provident funds, with bonds issued against future natural gas revenues.
Draft legislation to set up the fund was passed to parliament along with a bill limiting the outflow of cash from the banks to prevent a run on accounts when branches reopen next Tuesday after a closure of more than a week.
"There is a need for this bill as a matter of emergency, public order and public security to impose temporary restrictive measures on the movement of capital," the text said.
The two bills were among a clutch of draft laws being hastily drawn up by ministers and their advisers as part of their revised plan.
The Cyprus Central Bank is pressing the government to introduce emergency legislation on the restructuring of the whole banking sector to protect deposits and jobs, its governor Panicos Demetriades said.
It "has recommended the urgent submission and immediate enactment into law by the House of Representatives of the legislative framework relating to the reorganisation and recovery of the Cypriot banking system," he told reporters.
"This consolidation process will prevent the risk of bank failures and protect in their entirety all insured deposits up to the amount of 100,000 euros ($129,000)," he said.
"It also creates conditions for the recovery of the banking system and guarantees jobs," said Demetriades as he entered the presidential palace in Nicosia for emergency talks ahead of an expected session of parliament.
Demetriades said that without the legislation the island's second largest bank Popular Bank -- Laiki in Greek -- faced the threat of immediate bankruptcy.
"With the establishment and enactment of the above legislative framework, consolidation measures will be implemented at Popular Bank, in order for it to be able to continue to provide banking services to customers, with the reopening of banks on Tuesday," he said.
"Otherwise, Popular Bank will be driven to immediate bankruptcy and termination of business, with devastating consequences for employees, depositors as a whole, our banking system and the economy."
With banks in lockdown until next Tuesday, queues grew at cash dispensers outside Laiki branches as rumours, denied by the central bank, circulated that it would close for good.
Around 200 protesters outside parliament, mostly employees of the bank in the eye of the storm, including many women, held placards which read: "Hands off Laiki," and "Laiki now, what next?"
Two lines of around 50 anti-riot police, outnumbered by the media, cordoned off access to the parliament building.
Many protesters vented frustration at Germany and its Chancellor Angela Merkel, seen as imposing tough terms on Cyprus in return for a bailout. "We won't be Germany's slaves" and "Merkel fascist, Merkel kaput," read their banners. "No to the 4th Reich."
There were Russians among the demonstrators, one holding an iPad with a picture of President Vladimir Putin. "Russia, help," read another placard.
Lawmakers on Tuesday flatly rejected a highly unpopular measure that would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for the loan, leaving the government scrambling to find other ways to raise cash to repay its debts.