NICOSIA/BRUSSELS - The International Monetary Fund (IMF) is blocking a bailout agreement for Cyprus by insisting the merger of the Mediterranean island's two largest banks, the official Cyprus News Agency reported on Saturday.

The agency quoted a senior official of the Cypriot side in the negotiations with international lenders as saying that "we are not even near an agreement with the troika."

The official was also quoted as saying that lack of an agreement is entirely due to the inflexible stance of the IMF representative.

She is raising new issues every half an hour, the official said, referring to Delia Velculescu, who heads the IMF delegation.

Thousands of bank employees march to the parliament during a protest in Nicosia, the capital of Cyprus, March 23, 2013. Cyprus said on Saturday it would tax big savers at its largest bank in a dramatic U-turn as it raced to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse. [Photo/Agencies]

The official familiar with the negotiations said, on condition of anonymity, that Velculescu is sticking to directions by IMF chief Christine Lagarde that the Bank of Cyprus be treated in the same way as the Cyprus Popular Bank.

The European Central Bank (ECB) and the European Commission have accepted the Cypriot position for the Bank of Cyprus to continue its operations after 20 percent of deposits over 100,000 euros (about $129,000) be exchanged with bank stock.

The IMF insists that the bank be split in a good bank to take over guaranteed deposits of under 100,000 euros and good loans and the bad section to be left with deposits of over 100,000 euros and the bad loans be liquidated after some years.

The same official said the IMF also insists that the good sections of the two banks be merged.

The Cypriot parliament canceled a debate on legislation imposing a levy on bank deposits on Saturday, as daylong negotiations with international lenders on the bailout dragged into the night.

Cyprus President Nicos Anastasiades conferred late in the day with the leaders of the troika, namely the European Commission, the ECB and the IMF, and later invited the leaders of parliamentary parties to a night meeting to brief them on the outcome.

Sources at the presidential palace said Saturday's negotiations centered on a levy to be imposed on deposits in the Bank of Cyprus, the island's largest lender.

An alternative option to impose a low levy on deposits in about 26 foreign banks operating in Cyprus was abandoned as potentially wrought with problems, including legal ones.

The state broadcaster said that abandoning the option to tax all deposits would possibly mean increasing the levy to up to 25 percent on Bank of Cyprus deposits over 100,000 euros, so as to generate about 2.8 billion euros.

This amount will compliment assets totaling 3 billion euros out of selling the Greek units of Cypriot banks and the planned investment fund.

Meanwhile according to the latest development, a bailout agreement for Cyprus expected to be announced soon provides for a partial swap of deposits in the Bank of Cyprus with bank shares, sources close to the ongoing bailout talks said late Saturday.

Prodromos Prodromou, a ruling DISY party parliamentarian, said that under an agreement between Cypriot authorities and EU/IMF negotiators, 20 percent of deposits over 100,000 euros will be exchanged with bank stock.

He also said that a plan under consideration provides for a merger involving the Bank of Cyprus and the "good" part of the Cyprus Popular Bank which will take over guaranteed deposits below 100,000 euros and good debts.

It is still unclear if depositors in other banks will take a loss, as the agreement is still being debated at a meeting of parliamentary party leaders under President Anastasiades.

Still unconfirmed reports suggested that deposits of over 100,000 euros in other lenders except the Bank of Cyprus will be burdened with a 4-percent levy. It is also still unclear whether this levy will be imposed on deposits in about 26 foreign banks operating in Cyprus.

The troika had set a condition for Cyprus to raise itself 5.8 billion euros before approving a 10-billion-euro bailout so as to keep the total sovereign debt down to a mark which would make it manageable.

The troika has estimated Cyprus's financial needs until 2016 at about 17 billion euros, a sum equal to the island's GDP, hence the difficulty of the task to bailout its economy.

Saturday's negotiations between Cypriot authorities and the troika were held against a background of mass street demonstrators by thousands of bank employees expressing concern about losing their jobs.

Several hundred employees will almost certainly be laid off after a decision to consolidate the Cyprus Popular Bank by splitting it in two sections - one to handle deposits below 100,000 euros and also good loans and the other to take over larger deposits and bad debts.

The Eurogroup has scheduled a ministerial meeting on Sunday afternoon to consider a revised bailout deal for Cyprus.

President Anastasiades was invited to Brussels to be at hand and European Commission President Jose Manuel Barroso offered the Commission's jet to fly him to the EU headquarters.

In Brussels, European Commissioner for Economic and Monetary Affairs Olli Rehn said late Saturday that Cyprus faces a "very difficult" near future and has to take "hard decisions".

"The European Commission is working hard to facilitate a solution to help Cyprus," Rehn said in a statement released on Saturday night.

"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. Today, there are only hard choices left," Rehn said.