"It's a strange feeling, having so often been here... to announce tougher measures, but today's the day we're going to lift them," Prime Minister Katrin Jakobsdottir said at a press conference on Friday.

The decision marks the end of rules around social distancing, mask-wearing, limits on public gatherings and the opening hours of restaurants from Saturday.

Iceland first introduced virus restrictions in March 2020, and Health Minister Svandis Svavarsdottir said the easing of measures signalled a return to normal life.

"We're reinstating the society we're used to living in", she said in a statement.

Iceland is the first nation in Europe to lift all restrictions, in line with a four-stage timetable it had previously laid out.

The full removal of curbs was planned for the second half of June, when around 75 percent of people over 16 were expected to have received at least one vaccine dose.

By Thursday that figure stood at almost 88 percent, or 295,000 out of Iceland's total 365,000 people.

Iceland will keep up restrictions at its borders, requiring a negative PCR test of travellers on arrival and a further check after a five-day quarantine for the unvaccinated.

Vaccinated arrivals or those who have overcome a previous COVID-19 infection will be free of the requirement to submit to a test on arrival in Iceland from July 1. — Agencies