Cyprus has adopted legislation allowing the government to split the island's failing lenders into good and bad banks.

The country is trying to clinch a bailout from the European Union and avert a financial meltdown.

Officials say the law is likely to be applied first to Cyprus's second largest lender, Cyprus Popular Bank, to restructure it without hurting small depositors.

Other moves by Cyprus's parliament led to the adoption of creating a "solidarity fund" to pool state assets.

The solidarity fund would create a basis for an emergency bond issue and will give the government the power to impose capital controls on banks.

The new laws are part of a package of measures to satisfy international lenders as the island tries to seek its €10bn bailout from the European Union and avert bankruptcy.

Finance ministers from the 17-nation eurozone will hold talks on Sunday about a revised bailout of Cyprus, sources have said.

Cyprus's president will travel to Brussels at the weekend if a solution is found, a government official said.

European Council President Herman Van Rompuy and European Commission President Jose-Manuel Barroso also put out a statement this evening saying they were postponing a planned EU-Japan summit in Tokyo due to the Cyprus problem.

"The ongoing efforts to find a solution for the financial situation of Cyprus require our presence in Brussels," the two said in a joint statement.

The summit had been designed for the formal launch of free trade talks between the European Union and Japan.