Police said officers were called to an apartment in the Reykjavik suburb of Arbaer early yesterday when a man fired a shotgun from inside the flat.
Two policemen, who were not armed, were shot when trying to enter the gunman's apartment. A special armed unit then entered and fired at the man, who was rushed to the hospital, where he died.
Iceland, which has a tiny population of around 320,000, has a low crime rate and gun violence is extremely rare. Its regular police force does not carry firearms.