Iceland's government on Tuesday denied a Chinese report that it had given the green light for a Chinese tycoon to lease and develop part of a huge swath of Icelandic wilderness he was blocked from buying last year.

"The answer is short: 'No'," industry ministry spokesman Thorir Hrafnsson told AFP when asked if Reykjavik had agreed to allow Huang Nubo, founder of property firm Zhongkun Group, to lease land in northeastern Iceland.

Iceland late last year denied a request by Huang to buy 300 square kilometres (200 square miles) of an area known as Grimsstadir a Fjoellumland for a tourist resort and to create Europe's biggest nature reserve.

But on Tuesday China's official Xinhua news agency quoted a Zhongkun Group spokeswoman saying "the Icelandic government has approved a new proposal to develop the resort on a land lease."

Hrafnsson however insisted that Finance Minister Oddny Hardardottir had yet to approve the investment agreement allowing Huang to lease a swath of land now amounting to just two to three square kilometres.

Last week, a committee representing Iceland's ministries of economy, finance and industry recommended the government approve a deal to allow Huang to lease land in the area, two weeks after a visit to the country by Chinese Premier Wen Jiabao.

But Hrafnsson pointed out that the deal could not be approved until Huang established the company that would purchase the lease, Zhongkun Grimsstadirm, something he said might happen on Friday.