The European Central Bank (ECB) no longer allow Greek banks to use government debt as collateral for loans.

The ECB’s decision effectively cuts off Greek banks’ access to a key source of much-needed cash, increasing pressure on the country's new government to engage with international creditors.

While Greek bonds have a junk rating, the country’s finance ministry insists that the banking system remains “adequately capitalised and fully protected”, including alternate liquidity channels.

The ECB announcement just after the new Greek finance minister Yanis Varoufakis had the first of a series of talks with ECB chief Mario Draghi.

Greece was pushing to renegotiate its 240-billion-euro ($350 billion) European Union-International Monetary Fund bailout.

Greece's new leftist government was appealing to the ECB to keep its banks afloat, but the unexpected ruling is considered by many to be a blunt refusal.

Mr Varoufakis's now moves on to talks with German finance minister Wolfgang Schaeuble, whose country has rejected any roll-back of agreed austerity policies.

Greek prime minister Alexis Tsipras – who was elected largely due to his anti-austerity platform – faces some real fiscal problems around the austerity shackles imposed by Germany.

Greece says such restrictions are choking growth in the economy, which has shrunk by a quarter and still grapples with an unemployment rate over 25 per cent.

Greek debt is worth 1.75 times its annual economic output.