Women's case is now being sent to state prosecutor

Iceland's premier and paper publisher deny any financial transactions

Two sisters have been arrested by police for allegedly attempting to blackmail Iceland's Prime Minister Sigmundur David Gunnlaugsson.

Hlin Einarsdottir, the former editor of the bleikt.is and Malin Brand, a journalist at the daily newspaper Morgunblaoio, admitted sending the premier a hand-written note demanding money, local police said in a statement.

The women, born in 1981 and 1977, were arrested on Friday in the town of Hafnarfjordur, near the capital Reykjavik.

Accused: Hlin Einarsdottir, the former editor of the bleikt.is was arrested with Malin Brand, for trying to blackmail Iceland's Prime Minister

'In an interrogation, the women admitted to having sent the letter in question,' a police spokesman said. 'After the investigation is completed it will be sent to the state's prosecutor.'

The sisters claimed to have proof that Gunnlaugsson had last year been involved in buying DV, Iceland's oldest newspaper, and demanded a pay-off to conceal the alleged transaction.

The newspaper was bought in November by Bjorn Ingi Hrafnsson.

'The letter threatened that information harmful to me would be made public if I wouldn't pay millions of kronur to the author and his accomplice,' Gunnlaugsson said in an e-mailed statement.

Pic shows: Malin Brand was arrested for trying to blackmail Sigmundur David Gunnlaugsson, the Prime Minister of Iceland

Blackmail: The sisters claimed to have proof that Gunnlaugsson had last year been involved in buying DV, Iceland's oldest newspaper, which he denies

'It's right to note that I've got no financial relations with Bjorn Ingi Hrafnsson, nor did I have involvement in Vefpressan's acquisition of DV in any way.'

Hrafnsson also said the prime minister did not finance the purchase and that he owns no shares in the newspaper.

'I'm grief-stricken over today's news,' he said on his Facebook page.

Hrafnsson is one of the owners of Vefpressan, which owns DV and news websites including Pressan.is, Eyjan.is and Bleikt.is. One of the sisters was an editor at Bleikt.is.

Admission: Hlin Einarsdottir and Malin Brand reportedly admitted to police that they sent the premier a hand-written note demanding money

But the Prime Minister and the publisher of DV, Bjorn Ingi Hrafnsson, have both rejected claims that the former helped finance the latter's takeover of the magazine.

In a short statement the PM said that he has 'no financial connection to Bjorn Ingi whatsoever, nor have I been involved with Vefpressan Bjorn Ingiís publishing company] purchasing DV in any way.'