The UK will compensate any British troops in Cyprus hit by plans to introduce a bank levy as part of a £9bn EU bailout, the chancellor has said.
British government workers would also be protected, George Osborne said.
Under the bailout, account holders in Cyprus with up to 100,000 euros would pay a one-off levy of 6.75%; higher deposits would suffer a 9.9% levy.
The move could affect many of the 3,000 UK military personnel in Cyprus, and up to an estimated 25,000 expatriates.
Mr Osborne told the BBC's Andrew Marr programme: "For people serving in our military and serving our government we are going to compensate anyone affected by this bank tax; people who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax."
An emergency session to discuss the 10bn-euro ($13bn; £9bn) deal agreed by the EU and IMF on Friday is to take place on Monday.
The debate and a presidential address were to happen on Sunday but were postponed, state media said.
Residents have been queuing outside banks to withdraw their savings from cash machines.
On Saturday President Nicos Anastasiades admitted the deal was "painful" but said it was necessary to avoid a "disorderly bankruptcy".
However, his Democratic Rally party - which has 20 seats in the 56-member assembly - needs support from other factions to ratify the bailout.
Figures from the European Central Bank show that Britons have about 2bn euros ($2.6bn; £1.7bn) on deposit in Cypriot banks.
The Treasury said it could not currently put a figure on the cost of compensating British troops and civil servants in Cyprus.
A spokeswoman said they needed to collate information about how many accounts were affected and how much money was in them.
"An announcement will be made in a few days," she added.
A Ministry of Defence spokesman said there were around 3,000 British military personnel in Cyprus, but he did not know as yet how many were affected.
"British troops in the region can choose to have part or all of their salary paid locally," he said.
Sharon Bowles, the chairwoman of the European Parliament's Economic and Monetary Affairs Committee and MEP for South East England, said she was appalled by the plans for a levy.
"This grabbing of ordinary depositors' money is billed as a tax, so as to try and circumvent the EU's deposit guarantee laws. It robs smaller investors of the protection they were promised."
British expatriate Parker Williams, who runs the Cyprus Expat website and lives in the country's second largest city of Limassol, said there was a lot of confusion amongst British residents.
"Personally I'm not worried about it as a lot of people could see it coming and have already taken the necessary precautions with their money," he said.
But Fiona Mullen, an economist living on the island, told BBC News the plans were unexpected.
"We knew there was a possibility they would take the deposits above the insured threshold - so above 100,000 euros - but nobody thought they would take it down to someone with five euros in the bank.
"I was trying to take money out of the ATM [on Saturday] but I couldn't."
Laiki Bank UK said on its website: "We have clarified with the Cyprus authorities that this levy is not intended to have an effect on customer deposits held with the overseas branches of Cyprus Banks, which includes Laiki Bank UK."
Bank of Cyprus UK said on its website: "Whilst the measures agreed include an up-front one-off stability levy on deposits in Cyprus, there is no effect on deposits with Bank of Cyprus UK Limited which is a UK bank."