The Panama Papers claim their first casualty -- Iceland's Prime Minister David Gunnlaugsson.

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.

The Panama Papers: how the world’s rich and famous hide their money offshoreGuardian analysis of leaked papers will show how influential people including heads of government have exploited tax havens
Read moreGunnlaugsson, the first major casualty from the Panama Papers leak of more than 11 million documents that lay bare the tax-avoidance arrangements of the rich and famous around the world, will nonetheless remain leader of his Progressive party, Jóhannsson said.
Local media said the move needed the agreement of both the rightwing Independence party – Gunnlaugsson’s coalition partner – and Iceland’s president, Ólafur Ragnar Grímsson, before it was official.

The Independence party leader, finance minister Bjarni Benediktsson, was reportedly in talks with Grímsson, who flew back early from the US on Tuesday morning to sound out party representatives as the island’s political crisis deepened.

Iceland was hard-hit by the mortgage crisis in 2007-2008 and has been recovering ever since.

The leaked documents from the Mossack Fonseca law firm show Gunnlaugsson and his wife, Anna Sigurlaug Pálsdóttir, bought a British Virgin Islands-based offshore company, Wintris Inc, in December 2007 to invest her share of the proceeds of the sale of her father’s business, Iceland’s only Toyota importer.

Gunnlaugsson sold his 50% stake to his wife for a symbolic $1 at the end of 2009, eight months after he was elected to parliament as an MP for the centre-right Progressive party. He failed, however, to declare an interest in the company either then or when he became prime minister in 2013.

His office has said his shareholding was an error due simply to the couple having a joint bank account and that it had “always been clear to both of them that the prime minister’s wife owned the assets”. The transfer of ownership was made as soon as this was pointed out, a spokesman said. The prime minister denies he was required to declare an interest.