NICOSIA, Cyprus - Cyprus’ parliament on Tuesday rejected a tax on bank deposits, discarding a European plan to force depositors to shoulder part of the country’s rescue in a standoff that risks renewed tumult in the euro area.

In a show of hands, Cypriot legislators in the capital, Nicosia, voted 36-0 against the proposal. There were 19 abstentions. Created by euro-area finance chiefs over the weekend, the deal had sought to raise $7.5 billion by drawing funds from Cyprus bank accounts in return for about $13 billion in international aid.

“No to new colonial bonds, no to subjugation, no to national dishonor and raw blackmail,” said House Speaker Yiannakis Omirou during the debate before the vote.

While the Mediterranean island nation accounts for less than half a percent of the 17-nation euro economy, the fight over the bank tax risks triggering more turmoil in the financial crisis that began in 2009 in Greece. Thedrawn-out political battle in the Greek Parliament to meet European Union demands for bailout funding roiled markets worldwide.

The rejection leaves Cyprus’ bailout in question. Without external funds, the country’s banks face collapse and the government could go bankrupt. The government will now have to come up with an alternative plan to raise money and might try to offer a compromise bill that would be more palatable to lawmakers.

European stocks dropped and the euro fell to a three month low against the dollar at the prospect of impasse in Cyprus. European officials including Dutch Finance Minister Jeroen Dijsselbloem had said that Cyprus must contribute to its own bailout, while stressing that the Cypriot situation is unique. German coalition lawmakers said that Cyprus can expect no aid without meeting the terms.

“Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Democratic bloc, said in a statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.”

French Finance Minister Pierre Moscovici said Tuesday that the euro group didn’t have an alternative plan.

“I don’t think about Plan B’s,” Moscovici said in Paris. “We’re in a Plan A. Everyone has to assume his responsibilities.”

Cypriot President Nicos Anastasiades, who said the plan’s alternative would be the “indescribable misery” ofa collapse of Cyprus’ banks, is scheduled to meet with political party leaders in Nicosia this morning.

Anastasiades spoke by phone with Merkel on Tuesday for the second time in as many days, German government chief spokesman SteffenSeibert said in a text message, declining to give details of the conversation.

“There is no precedent for what would happen if Cyprus rejected the conditions,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note before the vote. “Our best guess is that Europe would give Cyprus a brief and final chance to rethink and vote again.”

European policymakers would consider ramping up pressure on Cyprus in the event of a breakdown over the deposit tax, a European official who asked not to be named said before the vote.Among the potential measures is cutting off funds to the nation’s banks through the European Central Bank’s Emergency Liquidity Assistance program.

The European Central Bank said it “takes note of the decision of the Cypriot Parliament and is in contact with its Troika partners” fromthe International Monetary Fund and the European Commission, according to a statement. “The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.”

The proposed tax on deposits, championed by Germany and pulled together in a 10-hour negotiation session over the weekend in Brussels, drew worldwide criticism that it broke a taboo over the safety of bank-deposit savings and risked launching a bank run in other European countries. Cypriots awoke Saturday to find bank transfers blocked, prompting images oflong lines at automated teller machines.

Under the original deal, to qualify for the $13 billion bailout from other eurozone countries and the International Monetary Fund, Cyprus had to raise additional funds by taxing all bank accounts. Those with bank accounts under $129,432 would pay 6.75 percent, and those above that amount would be taxed at 9.9 percent on their deposits.

The government amended the bill Tuesday to exempt small depositors with up to $25,730 in a bank. The change was not enough for lawmakers.

“It seems at this moment there is no third way,” Averof Neophytou, vice president of Anastasiades’ Disy party, told the chamber before the vote in which his party abstained. “But we must try to find a different path.”

Outside, the parliament was surrounded by demonstrators singing the national anthem and chanting “this will not pass.” The crowd cheered when the results of the vote were announced.

Cyprus’ bank assets swelled to $164 billion at the end of January, seven times the size of its $23 billion economy, from $100 billion in 2007, data from the European Central Bank and the European Union’s statistics office show.

Investors in Cypriot banks were chasing interest on deposits that looked increasingly attractive as the returns available in other parts of the euro area declined. In January, Finance Minister Wolfgang Schaeuble demanded an investigation into whether Russia is using the island as a destination for money laundering. Cypriot officials deny the country is a haven for illegal money.

Cypriot banks paid an average 4.45 percent on deposits in January, compared with 4.25 percent in 2008, according to data from the Central Bank of Cyprus. The European Central Bank cut rates to 0.75 percent from 4 percent in the period and German banks lowered theirs to 1.5 percent from 4.01 percent.

Of the $88 billion in deposits held by nonbank clients at Cypriot lenders at the end of January, $27 billion, or 31 percent, was from clients outside the euro area and 7 percent from other nations inside the currency bloc, according to the Cypriot central bank.

The country’s three biggest listed lenders - Bank of Cyprus PLC, Cyprus Popular Bank PCL and Hellenic Bank PCL - had a total of $8.4 billion in losses in 2011 after writing down the value of their Greek bond holdings.

Nicholas Papadopoulos, the chairman of Cyprus’ parliamentary finance committee, said Tuesday that banks in Cyprus would remain closed “for as long as we need to conclude an agreement” but stressed this would be “in the next few days.”

Banks had been ordered to remain shut until Thursday while the bill was debated and amended, to prevent a bank run.

Papadopoulos said Cyprus wants a renegotiation of its bailout deal but is against the idea of seizing savings. “It has not been [implemented] in any other country in Europe, and we don’t wish to be the experiment of Europe.” Information for this article was contributed by Patrick Donahue, Georgios Georgiou, Maria Petrakis, Marcus Bensasson, Natalie Weeks, Tony Czuczka, James G. Neuger, Matthew Brocket, Nicholas Comfort and Annette Weisbach of Bloomberg News; and by Elena Becatoros and Menelaos Hadjicostis of The Associated Press.

Front Section, Pages 1 on 03/20/2013