Grimsson argued his political savvy was needed as Iceland faces EU membership talks
Iceland's President Olafur Ragnar Grimsson is set for a record fifth term in office after facing down a challenge from a well-known television reporter who had a new baby on the campaign trail.
With 100 percent of votes counted from Saturday's poll, the socialist Grimsson won 52.78 percent, while his main rival Thora Arnorsdottir came in second with 33.16 percent.
Grimsson, a 69-year-old former university professor, has held the largely ceremonial post since 1996 but has courted controversy for taking a more political approach to the role.
His challenger, a political novice, had been seen as a fresh face at a time when many Icelanders clamoured for a new breed of politicians following the country's devastating economic crash in 2008.
"This has been a valuable experience. Now I will take a holiday, attend to my new daughter and the other children and go on maternity leave and think how I can put this experience to use," Arnorsdottir told public broadcaster RUV.
The 37-year-old television reporter, who had been leading in the opinion polls before Grimsson decided to run again, interrupted her campaign for a week in May to give birth to her third child.
"To get more than one-third (of votes), I'm overwhelmed. Of course I hoped to win," the striking blonde said, adding she had no plans to run again in four years: "This is something you only do once in a lifetime."
A pioneer in women's rights, the country is home to the world's first democratically elected woman head of state, Vigdis Finnbogadottir, and current Prime Minister Johanna Sigurdardottir, who is an openly gay woman.
Grimsson, a former finance minister, had argued that his political savvy was needed as Iceland, which is recovering rapidly and has already returned to growth, prepares to tackle thorny EU membership talks and an October referendum on a new constitution.
"Iceland is now at a crossroads. Behind us are difficult years. Ahead are decisions on the constitution and our relationship with other countries in Europe," the silver-haired president wrote in an article published in the Morgunbladid on voting day.
"There is still turbulence in the continent's economy and in many areas...The president... shall assist the country in tackling the biggest issues; they will determine the fate of Icelanders for decades."
Grimsson, like a majority of Icelanders, is opposed to EU membership for fear the North Atlantic nation will lose its sovereignty.
The left-wing government applied however to join the bloc in 2009 after the financial and economic crash that saw Iceland's three biggest banks collapse and required a $2.1 billion bailout from the International Monetary Fund.
Grimsson was subsequently heavily criticised for befriending bankers during the boom years and hailing their entrepreneurial spirit, and was ridiculed for supporting what turned out to be a bubble that burst.
But he vindicated himself in the eyes of the public with his refusal, twice, to sign a bill to use taxpayers' money to compensate Britain and the Netherlands for the 2008 collapse of online bank Icesave.
While allowed to do so by the constitution, no president had exercised that veto right until Grimsson did so in 2004 over a controversial media law.
Grimsson will now begin a record fifth four-year term in office, though he has won only three presidential elections: in both 2000 and 2008 he was the only candidate and was granted a new term without a vote.
Iceland has had five presidents since its independence from Denmark in 1944, three of whom have served four terms.
Voter turnout was 69.2 percent.