Brussels has hailed the decision by the Icelandic parliament to give the go ahead to talks on joining the EU, suggesting it is proof of the "vitality of the European project."
Iceland's legislature, the 63-seat Althingi, passed the proposal to start the EU accession process by a narrow majority of 33 votes to 28, with two abstentions, on Thursday (16 July).
Supporters of the move argued EU membership would help the island, with a population of 320,000, emerge more quickly from the global financial and economic crisis which devastated the countries' banks last year.
Opponents of the EU said membership would harm the country's sovereignty as well as its fishing industry by introducing binding quotas, the two arguments that in the past dominated the EU debate in Iceland and prevented any attempts to join Europe.
European Commission president Jose Manuel Barroso welcomed Thursday's move by Icelandic MPs and pointed out that Iceland is a "European country with long and deep democratic roots."
"The decision of the Icelandic parliament is a sign of the vitality of the European project and indicative of the hope that Europe represents," Mr Barroso said in a written reaction to the developments in Reykjavik.
Swedish prime minister Fredrik Reinfeldt, whose country currently chairs the 27-member bloc, said he welcomed Iceland's application and said it "will be assessed in accordance with the EU's established procedures."
It is expected that Reykjavik will formally submit its EU membership application to a foreign ministers' meeting in Brussels on 27 July.
Under EU rules, any European democratic country which respects the rule of law, democracy and human rights can become a member of the Union. Entry must be unanimously agreed by all member states.
Although Iceland meets the EU's political criteria of a modern democracy and it has implemented around two thirds its rules through being a member of European Economic Area (EEA), tough negotiations are expected on fishing rights. Fisheries are not covered by the EEA.
"We would no longer be the lawmakers on how we run our fishing industry. This is the key element for us. And we just don't see any need for an application when you know what the outcome is going to be," said Sigurdur Sverrisson from the Federation of Icelandic Fishing Vessel Owners, reports Deutsche Welle.
Icelanders will have final say on EU membership once negotiations are finished.
Arni Thor Sigurdsson, the chairman of Iceland's EU affairs parliamentary committee, said negotiations could kick off in February next year, with a referendum on the EU membership to be possibly held in late 2011 or early 2012, Reuters reported.
Iceland could be ready to join the EU in 2013 at the earliest, Mr Sigurdsson told the agency.