The legislative elections are held after the collapse of a fragile coalition, with the economy one of the main concerns.
Icelanders are electing a new parliament after disagreements over the economy, immigration and the fallout from volcanic eruptions forced Prime Minister Bjarni Benediktsson to pull the plug on his coalition government and call early elections.
Saturday's election is the sixth general election held in Iceland since the 2008 financial crisis devastated the North Atlantic island nation's economy and ushered in a new era of political instability.
Opinion polls suggest the country could be about to suffer another upheaval, with support for all three ruling parties falling.
Benediktsson, who was named prime minister in April after his predecessor resigned, struggled to hold together the unlikely coalition of his conservative Independence Party with the centrist Progressive Party and the Left-Green Movement.
Harsh weather in the subarctic nation threatened to hinder some voters' access to polling stations on Saturday, with heavy snow blocking roads in many areas.
The weather could also delay the delivery of ballot boxes to counting centers after the polls close at 10:00 p.m. (22:00 GMT).
Ten parties compete
Voters will elect 63 members of the Althingi (parliament) in an election that will allocate seats by both regional electoral districts and proportional representation.
Parties need at least 5 percent of the vote to win seats in parliament. Eight parties were represented in the outgoing parliament and 10 parties are participating in these elections.
Turnout is traditionally high by international standards: 80 percent of registered voters voted in the 2021 parliamentary elections.
Iceland, a windswept island near the Arctic Circle, typically holds elections during the warmest months of the year.
But on October 13, Benediktsson decided that his coalition could no longer last and asked President Halla Tomasdottir to dissolve the Althingi.
The fragmentation of Iceland's political landscape came after the 2008 financial crisis, which sparked years of economic turmoil after the country's debt-ridden banks collapsed.
The crisis generated anger and distrust toward parties that had traditionally traded power back and forth and sparked the creation of new parties ranging from the environmentally focused Left-Green Alliance to the Pirate Party, which advocates for direct democracy and individual freedoms.
Like many Western countries, Iceland has been hit by rising costs of living and immigration pressures.
Inflation peaked at an annual rate of 10.2 percent in February 2023, driven by the fallout from the COVID-19 pandemic and the Russian invasion of Ukraine.
While inflation slowed to 5.1 percent in October, it remains high compared to neighboring countries.
The U.S. inflation rate was 2.6 percent last month, while the European Union's rate was 2.3 percent.
Public finances have also been affected by repeated eruptions of a volcano in the southwestern part of the country, which have displaced thousands of people.
A year after the first eruption forced the town of Grindavik to be evacuated, many residents still do not have safe housing, prompting complaints that the government has been slow to respond.
It has also contributed to a shortage of affordable housing exacerbated by Iceland's tourism boom.
Iceland is also struggling to accommodate a growing number of asylum seekers, causing tensions within the small and traditionally homogeneous country.
The number of refugees seeking protection in Iceland has risen to more than 4,000 in each of the last three years, compared to a previous average of less than 1,000.
