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According to director of the FTSE group David Hobbs, the move was made because the country's stock market capitalisation has fallen to such an extent that it no longer qualifies, the Financial Times reports.
The publication noted that this is the first time a country has been removed since the global equity index series was established in September 2003.
Responding to the development, Nigel Rendell, senior emerging markets strategist for RBC Capital Markets, said: "This is bad news for Iceland. Even though most investors would have reduced their exposure to Iceland already, it will not help the country's economy."
It is suggested by FTSE that the Icelandic equity market has fallen 94 per cent since a peak in July 2007, with its market capitalisation dropping to $1.96 billion (£1.2 billion).
Meanwhile, Credit Suisse analyst Richard Kersley recently suggested that an anticipated rise in mergers and acquisitions activity is buoying stock market trading.
