INTERVIEW-Iceland PM: EU entry talks may take only 1-2 years

* Iceland talks to join EU will take 12-24 months: PM

* Illogical to link Icesave dispute and entry talks

* Icesave has affected Iceland public opinion towards EU

By Darren Ennis

BRUSSELS, Feb 4 (Reuters) - Iceland already is closely aligned with the European Union and could complete talks on becoming a full member 12 to 24 months after discussions start, Prime Minister Johanna Sigurdardottir said on Thursday.

She set aside concerns about collapsed Icelandic savings bank Icesave and a dispute with Britain and the Netherlands about lost deposits, saying it made no sense to link the disagreement to EU membership discussions.

"It is quite clear in our minds that the EU application and the Icesave issue are unrelated," she told Reuters in an interview after talks with European Commission President Jose Manuel Barroso in Brussels.

"EU accession is about the future of Iceland, its long-term interests and its position in Europe ... Again, there is no link between Icesave and our EU accession process and it would be very illogical to make such a link," she said.

Iceland, a country of 320,000 people in the far north of Europe, is a member of the European Economic Area and has signed other agreements with the EU, meaning its bid to become a member can move more rapidly than other candidates.

Sigurdardottir said she did not think it would take longer than two years to complete talks once they had started. EU leaders could agree a timeframe for the entry talks at a summit in March, if the Commission recommends such a move this month.

"Given our already close integration with the EU ... and based on the accession talks of our Nordic friends in the early 1990s, Iceland's accession talks could possibly be completed in 12-24 months after they start," Sigurdardottir said.

Britain and the Netherlands have in the past expressed reservations about Iceland moving ahead with entry discussions before it resolves the Icesave issue, in which more than $5 billion of foreign deposits were lost when the bank collapsed.

Iceland's banking system, currency and economy all folded under the impact of the global credit crisis in late 2008.

Iceland had committed to repaying those who deposited money with Icesave, but went back on that decision at the start of this year as Icelanders voiced strong opposition.

Sigurdardottir said discussions were going on regularly with British and Dutch authorities to try to resolve the Icesave dispute, and said she was hopeful for a resolution.

"It is not in the interest of the EU, the UK, the Netherlands or Iceland to complicate our accession process ... as it would only undermine our long-term strategy towards economic stability and rebuilding our economy," she said.

"The Icesave issue has been an exceedingly difficult issue for my government and our population at large," she said.

"It is hard for our taxpayers to stomach that they are expected to cover part of the losses incurred by irresponsible private bankers." But she added:

"My government has repeatedly stated its intention to live up to its international obligations, and the Icelandic parliament has three times stated its intention to repay the UK and the Netherlands the minimum deposit guarantee paid out to Icesave retail depositors, in accordance with EU law."

(Writing by Luke Baker; Editing by Michael Roddy)