A new government was formed in Iceland on Sunday, with Johanna Sigurdardottir appointed as the prime minister, the first woman to hold this position in the country, according to reports reaching here from Reykjavik.

Johanna Sigurdardottir from the Social Democratic Alliance announces a new centre-left coalition government in Reykjavik Feb. 1, 2009. [inhuanet.com]

Sigurdardottir, a Social Democrat, will join hands with new finance minister Steingrimur Sigfusson, leader of her party's coalition partner the Left-Green Party, to try to dig the country out of a deep economic crisis.

The two parties will lead an interim government until a snap election is held, Iceland President Olafur Ragnar Grimsson was quoted as saying by the Icelandic newspaper Morgunbladid.

"We live in difficult times and need to restructure the Icelandic economy and adopt new values," Sigurdardottir said at a Sunday press conference.

"The new coalition will focus on restarting the economy and protecting the households. The new coalition will emphasize a responsible economic management and undertake many projects in a short period of time," she promised, adding that the agreements with the International Monetary Fund (IMF) will be honored and the new government is dedicated to cooperation with the IMF.

A former airline hostess, the 66-year-old Sigurdardottir used to be a Social Democrat Cabinet minister. She is also the world's first openly gay head of government, reported Morgunbladid.

The previous government of Iceland, headed by Geir Haarde from the Icelandic Independence Party, was forced to resign on Jan. 26 after months of increasingly violent protests triggered by the current economic crisis.

Iceland's economy is expected to drop by 10 percent in 2009 following the collapse of the country's currency and financial system last October.