A fifth straight defeat for Wales in UEFA Women’s Nations League Group A3 has seen Gemma Grainger’s side relegated to League B.
The must-win match against Iceland at Cardiff City Stadium ended with victory for the visitors, leaving Wales six points adrift with one game left.
Wales were on top and denied a penalty for a challenge on Jess Fishlock, but Hildur Antonsdottir would poke home to give Iceland an interval advantage.
Hlin Eiriksdottir also had the ball in the Welsh net but was penalised for handball, after Olivia Clark had saved the initial effort from Selma Sol Magnusdottir.
Fishlock saw her powerful effort saved by Telma Ivarsdottir, then with 11 minutes left of the ninety Dilja Zomers doubled the lead from distance.
Elise Hughes headed home Lily Woodham cross deep into added time but it was just a consolation.
Wales end their Nations League campaign with the visit of Germany to the Swansea.com Stadium on Tuesday 5 December.
