A furore over a paedophile's links to Prime Minister Bjarni Benediktsson has triggered the collapse of Iceland's ruling coalition.
The Bright Future party announced it was withdrawing from the three-party coalition after nine months in office.
It blamed a "serious breach of trust within the government".
Earlier it emerged that the prime minister's father had written a letter recommending a convicted paedophile have his "honour restored".
This old Icelandic system permits convicts to have certain civil rights restored - enabling them to run for public office, qualify for certain government jobs or serve as an attorney or solicitor, for example - if three letters of recommendation from persons of good character are provided.
But Icelanders have been horrified by the secret backing for Hjalti Sigurjón Hauksson - convicted in 2004 of raping his stepdaughter almost every day for 12 years from when she was five. He served a five-and-a-half-year jail term.
The Reykjavik Grapevine news site quotes the survivor of Hauksson's abuse as saying it was "surreal" that he should receive restored honour.
The government has also been accused of an attempted cover-up after it refused to disclose who had written the letter of recommendation.
It only emerged on Thursday that it was Benedikt Sveinsson, Prime Minister Benediktsson's father, but the prime minister is said to have been informed about his involvement in July.
In a statement, Mr Sveinsson apologised for providing the recommendation for Hauksson, an old friend of his.
Iceland's justice minister has said she is preparing a bill to reform the restored honour system in response to the furore.
It's never the crime, it's the cover-up. C'mon, America figured that one out 45 years ago, Iceland.