The Chinese tycoon behind a failed venture last year to purchase a large swath of Icelandic wilderness could instead be permitted to lease part of the land for 40 years, the industry ministry said Friday.

Iceland last year denied a request by Huang Nubo -- founder of private property firm Zhongkun Group -- to buy 300 square kilometres (200 square miles) of land in northeastern Iceland for a tourist resort and to create Europe's biggest nature reserve.

But on Friday, a committee representing Iceland's ministries of economy, finance and industry recommended that the government approve a deal allowing him to instead lease two to three square kilometres of land in the same area "for hotel building and various tourist facilities," said industry ministry spokesman Thorir Hrafnsson.

"Now we're talking about a lease and the size has shrunk considerably" he told AFP, stressing that Industry Minister Oddny Hardardottir had yet to give the deal a green light.

"The minister has yet to decide whether to say yes or no," he said, adding that she was expected to reach a decision within the next week or so.

Huang, whose property company Zhongkun Group owns resorts and tourist facilities across China and the world, had last year offered to buy the area known as Grimsstadir a Fjoellum for about $10 million and had wanted to invest about $200 million (150 million euros).

But Interior Minister Oegmundur Jonasson blocked the deal, given the size of the partially government-owned land plot he wanted to buy and citing a law barring land purchases by people or companies from outside Iceland and Scandinavia.

In December, Huang slammed Jonasson as "a racist", lamenting to AFP that he was "politicising a business deal."

He also said at the time he could accept reducing the area he acquired in Iceland to "a few dozen square kilometres, but not just one or two."

"Building a single hotel in Iceland doesn't interest me," he said.

According to public broadcaster RUV, Huang intends to invest the same amount through his lease deal, which if it is approved was expected to create up to 600 new jobs.

Employment and development groups in the area had therefore advised municipalities in the area to create a shareholding company to buy 70 percent of the Grimsstadir a Fjoellum property and then lease it to Huang, RUV reported.

According to the broadcaster, the Chinese tycoon had already paid the full amount in advance.

Hrafnsson at the industry ministry, who did not know how much the lease cost, said it was unlikely the cash had already been handed over however, since Huang had yet to establish the company that would purchase the lease, Zhongkun Grimsstadirm, and still needed to negotiate with several of the landowners concerned.