Rating agency Moody's Investors Services cut Cyprus's sovereign ratings by one notch to Ba1 on Tuesday, a move which drew sharp criticism by the country's Finance Minister Kikis Kazamias.

Moody's said the reduction of Cyprus's ratings from its previous Baa3 level was based on its estimate that the Cyprus government would have problems finding the money to help banks recapitalize after their heavy losses resulting from the Greek debt writedown.

It said the banks would require resources amounting to over 20 percent of the island's gross domestic product (GDP) to recapitalize.

However, Kazamias said in a statement that the justification offered by Moody's was essentially based on the same facts which it cited when it cut Cyprus's ratings last November.

The rating agency also assigned a negative outlook to Cyprus's economy as a reflection of "very significant risks" coming from the Greek sovereign crisis over the next 12 to 24 months.

"It was unjust for Moody's to reduce Cyprus's ratings on the assumption of possible losses by banks in the next two, three or four years", Kazamias said.

He added that the decision came at a time when the island's banks were negotiating with possible foreign strategic partners to help them recapitalize after their heavy exposure to the Greek bonds.

All three major Cyprus banks said they would not need government financing to recapitalize as they could raise the money out of the private sector.

Moody's new rating brings the Cyprus economy down to junk level, along with other three European Union countries, namely Greece, Portugal and Ireland.

It said its downgrade was limited to one notch, because of an effective government austerity package aimed at consolidating the economy and the discovery of natural gas reserves in the islands offshore exclusive economic zone.

The discovery amounts to between 5 and 8 trillion cubic feet of gas, according to U.S.-based Noble Energy which carried out an exploratory drilling last year.