Iceland on Friday denied a request by a Chinese property tycoon to purchase a large swathe of land in the northern part of the island for a tourist resort, Interior Minister Oegmundur Jonasson said.

"It is not possible to say yes to the request of the Chinese company... to get an exemption to buy land," Jonasson told reporters.

The refusal was unexpected, coming two weeks after Iceland's economic affairs ministry said it was favourable to Huang Nubo's plans and recommended the interior ministry approve the request.

"The ministry of economic affairs sees no reason to believe that Iceland's interests are in any way threatened by the foreign investment in question," its minister Arni Pall Arnason wrote in a memo to Jonasson, released on November 10.

Huang Nubo had asked the Icelandic government in late August for permission to buy 300 square kilometres (200 square miles) of Icelandic wilderness to build a resort, since the land is partly owned by the government and approval is required for a non-resident of the European Economic Area to buy land.

Huang, whose property company Zhongkun Group owns resorts and tourist facilities across China and the world, offered to buy the land known as Grimsstadir a Fjoellum for $10 million and wanted to invest about $200 million (147 million euros).

He said he wanted to build a luxury resort with a hotel, golf course and sports facilities, and Europe's biggest nature reserve.

"We could not allow this no matter how you look at it," Jonasson said.

"We are talking about a land purchase on such a large scale that if we had agreed to an exemption one could say that the law was null and void and... that anyone who applied for an exemption after this would be allowed to buy, simply because of such a precedent."

Huang's representative in Iceland, Halldor Johansson, expressed "disappointment" and said he was "astonished" by the decision, according to news website visir.is.

He said Icelandic legislation did not specify any restrictions on the size of land that could be bought.

Icelandic Prime Minister Johanna Sigurdardottir also said she regretted the decision.

"The decision is a disappointment," she told visir.is, adding that the ruling had been based on "a very narrow interpretation of the law."

She stressed however that it was in Jonasson's power to make the decision, and that he had not sought out the government's opinion.

Friday's decision is final and cannot be appealed, Jonasson said.

Jonasson added that in his personal opinion, "I think we should put a halt to foreign ownership of Icelandic land", a reference to the uproar brought on last year when Canadian company Magma bought an Icelandic electricity producer, HS Orka.

Icelandic observers had suggested that Huang's purchase could help Beijing get a foothold in the Arctic region, as the melting ice cap means lucrative oil and gas deposits under the seabed could soon become accessible and shorter shipping routes open up.