Facing outrage, Cyprus' government delayed a parliamentary vote on the seizure and ordered banks to remain shut until Thursday while it tries to modify the deal to reduce the hit on people with small deposits.

Several hundred people gathered outside the vacant parliament building, with some chanting "thieves, thieves."

"We're very angry, betrayed, hurt and extremely disappointed," said protester Andriana Constantinou.

"The damage is done," said Louise Cooper, who heads financial research firm CooperCity. "Europeans now know that their savings could be used to bail out banks."

The euro and stocks around the world took a hit even though the Cypriot economy accounts for only 0.2 percent of the combined output of the 17 European Union countries that use the currency.

While trying to make the package more appetizing for those with low savings, the government has to make sure that the total raised remains the same at €5.8 billion.

One solution doing the rounds is to make the tax more graduated: placing a one-time 3 percent levy on deposits below €100,000, rising to 15 percent for those above €500,000.

Still, the government has a battle to get a majority in the 56-member Parliament after some 25 lawmakers from communist AKEL, socialist EDEK and the Green party said they would vote down the levy that they have criticized as disastrous.

The decision by Cyprus' 16 partners in the eurozone and the International Monetary Fund marks a significant shift in the way the debt crisis is being addressed. It is the first time that savings have been touched in a financial bailout. While it is not expected to cause a run on banks in Italy or Spain, it may make savers more likely to withdraw their funds.

"This sets a worrying precedent for Spain and Italy, but doesn't make widespread bank runs imminent," said Dario Perkins, an analyst at Lombard Street Research.

Cypriot authorities said they had no choice in the matter.

Cyprus' government spokesman, Christos Stylianides, accused eurozone countries of using "blackmail tactics" by insisting that if Cyprus did not raid savings accounts, it would have to immediately shut down the country's top two lenders.

Another reason for the raid is that Russian money accounts for a large part of the banks' deposits. An estimated €20 billion ($26.17 billion) of Russian money sits in Cypriot banks, part of it thought to be linked to money-laundering. European officials were loathe to give Cyprus bailout loans to protect those Russians' savings.


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