All of the scoring occurred inside the opening 18 minutes as Iceland recovered from a goal down to shock England in their first knockout match.
Iceland pulled off one of the greatest shocks in European Championship history when they recovered to beat England 2-1 in their last 16 clash on Monday and will now face hosts France in the quarter-finals.
England got off to a dream start when Raheem Sterling was brought down by goalkeeper Hannes Halldorsson and Wayne Rooney confidently thumped home the penalty in the fourth minute.
Ragnar Sigurdsson equalised within two minutes for Iceland, turning the ball in at the far post after Aron Gunnarson's massive throw-in was headed into his path by Kari Arnason.
Iceland then went ahead in the 18th minute when an intricate exchange of passes on the edge of the area ended with Kolbeinn Sigthorsson scoring with a low shot that goalkeeper Joe Hart got a hand to but could not stop from rolling into the net.
Shell-shocked England never recovered and slumped to one of the most embarrassing defeats in their soccer history.
