The envoy, Ma Jisheng, has not been replaced, and Reykjavik has been informed only that he was unable to return for "personal reasons", foreign ministry spokeswoman Urdur Gunnarsdottir told AFP.
Icelandic media reports claimed that the ambassador and his wife had "disappeared".
Hong Kong's Ming Pao daily, citing US-based Chinese-language website Mingjing News, said Ma and his wife "were suspected of giving state secrets to Japan and were arrested (in early February) by the Ministry of State Security."
A Chinese foreign ministry official was unable to shed further light on Ma's whereabouts at a press briefing in Beijing today, telling reporters: "I have no information on this."
The Chinese embassy in Iceland has refused all media requests for comment, and its website has a blank space where the name of the ambassador would normally appear.
Iceland's strategic location close to Arctic oil and gas reserves as well as new Arctic maritime routes has led to closer diplomatic ties with China.
It entered a free trade agreement with Beijing in April 2013, the only European country to do so.
