Iceland was settled from Norway and by Norse settlers from the British Isles in the 9th and 10th centuries. There were no formal ties with any other state during the first two-and-a-half centuries after the settlement which is known as the Commonwealth or Free State period. Fierce internal struggle and civil war broke out in the early 13th Century but in 1262-1264 and an allegiance sworn to the Norwegian crown as a means of securing the peace. In 1383 the Danish and Norwegian crowns were united, and Iceland was thereafter part of the Danish-Norwegian Kingdom.
In 1660 an absolute monarchy was proclaimed in Denmark, which Iceland accepted two years later. The absolute monarchy in Denmark was abolished in 1848 and in 1874 Iceland received its first constitution. This constitution established a ministry for Iceland in Copenhagen, but there was pressure from the start to have it moved to Iceland. In 1904 the first minister to sit in Iceland was appointed. With the centre of administration moved to Iceland, increased demands followed for full political independence from Denmark, and in 1918 a joint Danish-Icelandic committee reached an agreement whereby Iceland was proclaimed a sovereign state under a joint monarchy with Denmark. Under this agreement Denmark remained in charge of Iceland's foreign affairs, and the King was the joint head of state for both countries. This treaty was to remain in effect for 25 years, but either nation could request its revision after 1940. During World War II, Denmark was occupied by Germany and Iceland was at the same time occupied by the Britain. Then Iceland chose to take control of all its affairs, severing the remaining ties with Denmark. A motion to this effect was passed by the parliament and put to a referendum, in which the motion was passed virtually unanimously (97% in favour). Iceland was duly declared an independent republic on 17 June 1944.
Since then Iceland has been a republic with a written constitution and a parliamentary form of government. Under the constitution, the parliament and the jointly exercise legislative power.
The campaign for independence was the decisive element in Icelandic politics throughout most of the late 19th and early 20th centuries. Another defining factor was increased urbanisation during this time, whereby class considerations gradually replaced the independence movement as the focus of political attention. The roots of the party system of today can be traced to these two components. The first parties to be formed along these lines, i.e. class factors and the path to independence, were the Social Democratic Party and, as a counterbalance to it, the Progressive Party, which was to represent farmers' interests. Both were founded in 1916. The Independence Party, representing business and middle-class interests, was formed in 1929, and has traditionally been the largest party represented in the parliament. The People's Alliance, a radical left-wing party, was originally formed as a league between elements of the Social Democrats and the Socialists for the elections in 1956, but became an established political party in 1968.
The Social Democratic Party, the Progressive Party, the Independence Party and the People's Alliance were the principal political parties in Iceland during the 20th century. There have been other parties, generally formed as splinter groups from these four, but only two of them survived more than two parliamentary elections: The Women's Alliance, founded in 1983, and the Liberal Party, founded in 1998. Before the parliamentary election of 1999 some changes took place on the left wing of Icelandic politics. The Social Democrats, the People's Alliance and the Women's Alliance formed an election alliance, and then merged to form a formal political party, the Social Democratic Alliance in 1999. The more radical elements of the People's Alliance and various others did not participate in the Alliance and formed the Left Green Movement. Following the economic crisis in 2008, several new political parties have been formed, of which some have lasted since, others have lasted only one term.
Parliamentary elections, which are usually held every four years, last held in September 2021.
Iceland has participated actively in international cooperation. It co-operates extensively with other Nordic countries, for instance in the Nordic Council. Iceland joined the European Free Trade Association (EFTA) in 1970. In 1992 Iceland, Norway and Liechtenstein signed the European Economic Area Agreement (EEA) with the European Union and on 1 January 1994 the agreement entered force. Iceland applied for EU membership in July 2009. The Commission issued a favourable opinion and a year later accession negotiations were opened. Between 2010 and 2013 or until extraordinary parliamentary elections were held, 27 of the negotiation chapters were opened. During the time of negotiations, 11 of the chapters were provisionally closed. In March 2015 Iceland’s government requested that “Iceland should not be requested as a candidate country for EU membership”.