Millions of pounds were ploughed into Icelandic banks by local councils in Oxfordshire shortly before the banking collapse.

An investigation by The Oxford Times has shown that long after some local authorities had been trying to withdraw their money, three councils were still opening new accounts with Icelandic banks as late as September.

The collapse of Iceland’s major banks in early October left British savers, companies and local authorities facing the loss of millions of pounds. But it has now emerged that Oxfordshire County Council put £2m on September 5 into Iceland’s biggest bank, Landsbanki, and another £3m on September 10. The Vale of White Horse invested £1m into an Icelandic bank on September 24.

Using the Freedom of Information Act, the former Oxford Lord Mayor, John Power, also established that Oxford City Council made four separate investments this year totalling £4.5m. Sums of £1m were invested in June, July and on September 12.

The news will focus attention on the varying quality of the financial advice local councils received — for months before these investments were being made, Cherwell District Council was strenuously trying to get money that it had invested in 2006 and 2007 back from Glitnir Bank as the financial storm clouds gathered.

A spokesman for Cherwell said: “Glitnir’s overall rating remained in the lowest risk category until March 2008. We tried to take the money out in March 2008 and again in April 2008, regardless of any penalty we would have had to pay. However, we weren’t allowed to remove our money.”

Both West Oxfordshire District Council, which invested £9m in 2007 for a two-year period, and Oxford University, which invested £30m more than 18 months ago, had also been trying unsuccessfully to get their money back.

Newspaper and City analysts began raising doubts about Iceland’s banks at the start of the year, with the Financial Mail in March describing Icelandic banks as “the most unsafe in the developed world”. There have been reports that both the Government and the Bank of England had received warnings that Iceland’s banks were in trouble in April.

Liz Brighouse, the county council Labour group leader, said she had known nothing about the September investments made by her council until approached by The Oxford Times.

She said: “I had understood that money had been invested in Icelandic banks before September and the investment had accrued significant interest.”

Mr Power said: “It simply makes no sense to me. We cannot have weekly bin collections in Oxford because it will cost another £600,000 a year, but now we hear about city council officers squirreling away millions of pounds. I wonder how many of our elected members actually knew about this. In March there were articles saying that Iceland’s banks topped ‘the riskiness league’.”

Charles Shouler, the county council’s cabinet finance portfolio holder, said: “Perhaps those who think the incredible and unprecedented extent of the financial convulsions of September 2008 could have been foreseen should lend every council, police authority, university, health authority and the Audit Commission their crystal ball.

“Wise after the event remarks are not welcome. The simple truth is that Icelandic banks had a high credit rating when the money was invested."

Ed Turner, the deputy leader of Oxford City Council, said: “The world of local government, charities and universities has been let down by experts, who it turns out, were very late in forecasting the banks’ demise. Once we received the experts’ warning no more money was invested. But by then our money was locked in and the damage was done.”

Local councils are now working with the Government through the Local Government Association to try to recover their money from the Icelandic banks’ administrators.