The European Commission has recommended that Iceland should open EU membership negotiations, saying it fulfills the main political, economic and legislative criteria to start talks.
'Today the commission published its opinion on a new applicant country, Iceland, in which it recommends the opening of accession negotiations,' EU Enlargement Commissioner Stefan Fule told reporters in Brussels.
It is now up to the 27 member states to endorse the commission's decision.
Mr Fule would not put a deadline on the talks, but admitted that Iceland's membership of the European Economic Area - the regional single market area - was a definite advantage.
As a member of the EEA it already fulfills some three-quarters of the EU's accession criteria.
However, Mr Fulem stressed that much work remained to be done and that the same accession criteria would be applied to Iceland as to all other EU hopefuls.
Reykjavik, which put in its application last July, hopes to be able to enter the European Union in 2012.
Iceland will join a select group of nations, including Croatia, Macedonia and Turkey, which have official EU candidate nation status.
It may end up leap-frogging the queue to become the 28th member of the European Union, given the various problems of the other candidates.
The commission's recommendation comes despite an ongoing row between Iceland and EU members Britain and Netherlands over the collapse of an Icelandic bank in 2008.
Iceland's finance minister rejected a British and Dutch proposal that would compensate depositors who lost money in the collapse of online bank Icesave.
However, Finance Minister Steingrimur Sigfusson stressed that his government wanted to continue negotiating on an arrangement to reimburse 320,000 British and Dutch savers victimised by the failure of the bank.
