Social Democrats leader invited to form Iceland govt

Iceland's president has asked Social Democratic party leader Kristrun Frostadottir to form a new coalition government after her party finished first in parliamentary elections, the president's office says.

Frostadottir, 36, who has championed the Nordic welfare model, has vowed to tackle a cost-of-living crisis sparked by high inflation and borrowing costs.

If successful, she would replace a coalition headed by the conservative Independence Party.

Her Social Democratic Alliance became the biggest party in the snap election on November 30, securing 15 seats in the 63-seat parliament with 20.8 per cent of votes, just ahead of the Independence Party, which secured 14 seats.

"The key issue for the next government must be to keep the economy stable and in a good place ... to create continued conditions for lowering interest rates and inflation," Frostadottir told public broadcaster RUV.

Frostadottir said she would hold coalition talks on Tuesday with the centrist People's Party and the pro-European Union Reform Party, which won 10 and 11 parliamentary seats respectively.

The two parties were in the opposition to the outgoing government, along with the Social Democrats.

The possible coalition has been nicknamed "Valkyrie," a reference to Viking-era mythology, according to Icelandic weekly Heimildin because all three parties are led by women.

The parties would require a combined 32 seats to secure a majority in the Althingi parliament.

Iceland has enjoyed relative political stability since 2017 and ranks among the wealthiest countries in Europe per capita, bolstered by tourism, fisheries and cheap geothermal- and hydroelectric-powered aluminium production.

However, inflation and borrowing costs are near their highest level since the 2008 financial crisis and have helped spark an economic slowdown that became the main focus of voters' concerns in the election.