People line up to make transactions at an ATM machine outside a Bank of Cyprus branch in Athens March 20, 2013.

Nicosia - Cypriot lawmakers rejected a tax levy on bank deposits on Tuesday, forcing the eastern Mediterranean country into unchartered territory as bankruptcy looms without urgent bailout funding from international lenders.

Lawmakers voted 36 against in the 56-seat parliament. There were no votes in favour of the bill, which had been amended earlier Tuesday to protect small deposit holders from the controversial tax. Nineteen members abstained and one member was absent.

President Nicos Anastasiades said he respected the vote in parliament on the one-off tax after several parliamentarians said it was a “question of honour to say no,” as hundreds of protesters demonstrated outside parliament chanting, “We are not the slaves of the 21st century.”

Parliament President Giannakis Omirou said some were trying to turn the European Union from a community of solidarity into an area of poverty where it will be a “Europe of colossal differences between North and South.”

Across central Nicosia people could be heard honking their horns in celebration of the news. The demonstrators outside parliament cheered, applauded and sang the national anthem when they heard the bill had not passed.

The one-off tax on bank accounts in excess of 20,000 euros (26,000 dollars) was part of a deal struck with international creditors aimed at preventing Cyprus from going insolvent and leaving the eurozone.

The bill specified that small depositors would be exempt from the tax, with deposits of less than 20,000 euros to be spared entirely.

Deposits of up to 100,000 euros would have faced a 6.75-per-cent tax rate, while those above the 100,000-dollar mark would have faced a rate of 9.9 per cent.

By voting down the bill, Cyprus now will have no other choice but to come up with an alternative plan to raise money. If it fails to do so, it will not be eligible for international rescue loans and its economy will collapse.

The eurozone wants the Cypriot government to raise 5.8 billion euros as part of negotiations for a 10-billion-euro bailout. This was the first time in the eurozone crisis that European and International Monetary Fund creditors agreed with a cash-strapped EU government to force ordinary depositors to help pay for the bailout.

Earlier in the day, when asked if the country had another plan should the bill not pass, Anastasiades said: “We have our own plans.”

According to state broadcaster RIK, that plan could include the nationalisation of social security funds and the creation of a state property company that will offer guarantees to battered sectors of the economy, with the involvement of the EU and Russian governments.

The office of Anastasiades said fruitful talks on the state of the economy were held between the Cypriot president and Russian President Vladimir Putin after the vote.

Both men agreed to meet in the near future just as Cypriot Finance Minister Michael Sarris arrived in Moscow for talks with his Russian counterpart in an effort to seek additional aid. Russia has already loaned Cyprus 2.5 billion euros.

Putin had been critical of the tax, saying it was “unfair, unprofessional and dangerous.”

Analysts have said that there are fears the Russians, who own approximately half of the 60-70 billion euros held in Cyprus' banks, could end up withdrawing all their deposits.

The bank-deposit levy not only sparked public anger, but also upset financial markets.

Jeroen Dijsselbloem, the head of the Eurogroup of European Union finance ministers, expressed regret over the Cypriot parliament's rejection of the levy. He said the vote was “disappointing,” in a Dutch television interview.

“I confirm that the Eurogroup stands ready to assist Cyprus in its reform efforts,” the Dutch finance minister added in a statement.

German Finance Minister Wolfgang Schaeuble also was disappointed.

“We regret that Cyprus' parliament today decided against the programme worked out by the Eurogroup and the government of Cyprus,” Schaeuble said, adding that negotiators had taken sufficient precautions so that the decision today would have no negative effects on the rest of the Eurozone.

With banks remaining closed since Friday amid fears of a bank run, stunned Cypriots could be seen rushing to cash machines for the past several days. The daily withdrawal limit at ATM machines has remained unchanged at 800 euros.

In Greece, socialist leader and coalition partner Evangelos Venizelos said Cyprus should be given more time and that Russia could end up playing a key role in resolving the crisis.

“It was a major mistake to place such pressure on Cyprus,” he said, adding “a solution must be found with Cyprus remaining in the eurozone.”

Anastasiades has also been in touch with German Chancellor Angela Merkel, diplomatic sources said. On Monday, an angry demonstrator in Nicosia grabbed the German flag from the embassy and threw it onto the street, highlighting public resentment at the eurozone paymaster. - Sapa-dpa