The agreement aims to strengthen security cooperation, particularly in the Arctic, which has become of increasing strategic interest as sea ice melts with global warming.

"In the current volatile security context, this important milestone for the EU and Iceland brings an impulse to their already deep relations," the 27-nation EU said in a statement.

The deal was signed in Brussels by EU foreign policy chief Kaja Kallas and Iceland Foreign Minister Thorgerdur Katrin Gunnarsdottir.

It is the last in a series of accords Brussels recently inked with countries including Canada, Britain, India and others.

Iceland's government proposed this month that a referendum be held on August 29 on resuming the country's EU membership talks, which were shelved in 2015.

US President Donald Trump's push to take over Greenland has sparked concern in nearby Iceland. Its defence is currently provided by the United States and NATO, as it has no military of its own.

The island nation already has access to the EU's single market as a member of the European Economic Area, a vast free trade zone also including Switzerland and Norway.