The extent of the deal is breathtaking. For $200 million, a US arm of the Swiss pharmaceutical company, Roche, has acquired access to the genetic, medical and genealogical records of a whole country.

Gene-hunters have been eyeing Iceland as it has had virtually no immigrants since Vikings settled there in the 9th century. Biotech industry armed with rapid gene-mapping technology is looking for disease-causing mutations by comparing the DNA of patients with that of healthy people. An "uncontaminated" populace makes the job a lot easier.

Conscious that Iceland had detailed medical records and a strong cultural interest in genealogy, in 1996 a Harvard-educated geneticist, Dr Kari Stefansson, founded a company called deCODE to collect and index family histories, clinical records and DNA of his homogeneous native population.

The attraction for Roche was as immense as it was inevitable. The Icelandic health service has tissue samples dating back to the 1940s and meticulous records on every Icelander since 1915. Roche agreed to pay $200 million (£136 million/€172 million) to deCODE over five years in the biggest human genomics ventures ever embarked upon.

The project involves setting up a network of databases to establish the genetic origins of 12 diseases, including schizophrenia, Alzheimer's disease and adult onset diabetes. Identifying the mutant responsible raises the possibility of a cure.

Stefansson describes the alliance as "a great discovery tool"; an Icelandic company proudly working with its government and its people, contributing to solving some of the world's most pressing medical problems.

The process was best described by Washington Post writer John Schwartz who likened it to "trying to detect a single flat note sung by one person while wandering through a public park in which everyone is singing his own favourite tune". A population such as Iceland's, however, is more like a chorus, so it is much easier to detect the off-note.

Icelanders were initially supportive, believing it was advancing medical science and easing chronic unemployment, but with doctors and scientists voicing their opposition, and concerns growing over the granting of a 12-year monopoly to one company, the furore since the announcement of the deal has not waned.

That unease, nonetheless, was insufficient last month to prevent the passing by parliament of the Health Sector Database Bill by 37 votes to 20. Mannvernd (the Association of Icelanders for Ethical Science), set up to campaign against the bill, said of the outcome: "The members of the parliament, who voted yes, shamed Iceland and Althingi, the oldest continuous parliament in the world."

People's Alliance member Bryndis Hlod versdottir, a socialist, told The Irish Times she voted against because the deal grants one company monopoly rights which she considered to be "dangerous for the medical sector and for the development of science". She did not believe delicate personal information would be adequately protected. "Even if the information is coded, you can easily follow the individual. This means it will be possible to use this information against people."

Roche undertook to collect data "anonymously" but not to strip away identifying information as is done in other research. Such information will be encrypted so it cannot be read by unauthorised personnel, but the Icelandic Medical Association (which campaigned against the Bill) insists no encryption scheme can mask identities adequately when so much data are in one place.

This fear, and belief among the medical profession that the scheme threatens doctor-patient confidentiality, has made Hlodversdottir conclude it will prove to be unworkable.

"A complete paradigm shift in medicine" is how Roche described it, and not a crude $200 million buyout of a gene pool. The "unique source of genetic information" was likely to yield new drugs and gene therapies, and "shed new light on the causes of common diseases, and to find truly effective ways to diagnose, prevent and treat illness".

The company agreed provide Icelanders for free with any drugs or diagnostic tools coming from the research.

The project is turning a whole population into "electronic guinea pigs", according to David Banisar, policy director with the Washington-based Electronic Privacy Information Centre. It raised questions about what was done with the information. "These relate to privacy, employment and insurance. These are tricky issues not really dealt with. Science is searching ahead without anybody analysing the social implications."

European countries at least had some legal protection of patient details. It was open season in the US on medical records, he said. The insurance industry had been successful in thwarting attempts to bring in medical privacy laws.

The global hunt for genes by biotech companies is called "the vampire project" by opponents. It has largely focused on remote peoples of the southern hemisphere, although China is believed to be willing to offer its gene pool. Its heterogeneous population is "not as tasty" as that of almost pure Icelanders, Banisar adds.

The Icelandic project has far-reaching global significance. New Scientist magazine recognised this as soon as the Bill was published. The issues, it noted in an editorial, "are not private matters of the Icelanders". It added: "For the sake of us all, Iceland must get it right . . . Unfortunately for Iceland (and the world), the details of its Bill look all wrong."

The collection of blood samples is due to start within six months, but already a third of family and hospital doctors have told the government they will not feed information into the database unless patients request them to do so in writing. With considerable relief, parliamentarian Bryndis Hlodvers dottir predicts it will all end in chaos.