A dramatic winner form Arnor Traustason in injury time sealed a 2-1 win for Iceland against
Australia and a last-16 meeting with England at Euro 2016
An early opener from Jon Bodvarsson was cancelled out by Austria substitute Alessandro Schopf in the 60th minute, but a dramatic last-minute goal for Traustason on his competitive Iceland debut means they finished Group F in second place.
The country, with a population of just 330,000, will take on England on Monday night in Nice in the round of 16. They finished second behind Hungary due to having an inferior goal difference.
The loss for Austria means they are now out of Euro 2016, with Portugal finishing in third place after drawing 3-3 with Hungary.
Austria re-called defender Aleksandar Dragovic into the starting lineup after he picked up a suspension in the first game, while Iceland kept the same first XI that saw them draw 1-1 with Hungary.
The game began in a frantic fashion as in just the second minute, Iceland gave their first warning sign. Charlton forward Johann Gudmundsson took the ball on from outside the box and his effort smashed off the left-angle of the framework.
Iceland's forward Johann Berg Gudmundsson smashed the ball off the crossbar in the opening two minutes
Austria set out in a 4-3-3 to begin the game and found it hard to get into a rhythm, but they were nearly gifted an early goal.
In the 12th minute, Marko Arnautovic pressured the goalkeeper, who was caught dawdling on the ball, and was able to make a tackle. However, his strike bounced off Hannes Halldorsson for a goal-kick.
Iceland hit the woodwork once again just three minutes later as Gylfi Sigurdssson's in-swinging corner went over Austria goalkeeper Robert Almer and off the post.
Then, in the 18th minute, Iceland got the lead they deserved through Bodvarsson. A long throw into the box from Aron Gunnarsson was flicked on into the path of Bodvarsson, who was able to slide across his marker Julian Baumgartlinger and poke the ball past Almer into the net.
And with Iceland getting an early lead, the game took on a familiar narrative with Austria dominating possession but finding it hard to break down Iceland's rigid defence.
Jon Bodvarsson put Iceland in front in the 18th minute
Arnautovic had two further half-chances, but could not get away a clean attempt on goal.
But in the 38th minute, Austria had the chance to get a vital equaliser. David Alaba was hauled down in the box by Olafur Skularson and a penalty was awarded.
Centre-back Dragovic stepped up to take the penalty, but he missed as his shot smashed off Almer's right post and out for a goal-kick.
Aleksandar Dragovic missed a penalty in the 38th minute
The setback did not stop Austria from applying the pressure though. Baumgartlinger came close in the 41st minute with a ferocious curled effort from outside the box which Halldorsson was forced to tip over the bar before Martin Hinteregger headed the following corner over.
The second half began energetically, with Gunnarsson making a crucial block from Alaba to ensure Iceland kept hold of their 1-0 lead.
Moments later, appeals for an Austria penalty were quickly turned down after Ari Skulason, already on a yellow card, slipped and brought down Marcel Sabitzer, but nothing was given.
Theodor Bjarnason and Ragnar Sigurdsson (right) celebrate Iceland's victory
And Iceland were putting bodies on the line once again in the 51st minute, as Kari Arnason flung himself at Schopf's attempt.
Eventually, Austria's pressure paid off with a wonderful goal from Schopf. He picked up a pass from Alaba, ran around incoming defender Arnason, and coolly slotted the ball past Halldorsson into the bottom right-hand corner.
With Austria pressing hard to take the lead, inevitable gaps were being left at the back and Iceland teed up Swansea midfielder Sigurdsson, whose shot was well saved by Almer.
Alessandro Schopf came off the bench to equalise for Austria
Schopf was having a strong impact on the game, and forced Halldorsson into an excellent save as he found an opening in the box. He just had to slot the ball past the goalkeeper, who has only been a full-time professional for two years, but he could not get past the 32-year-old.
Austria began sending more men forward to try and get a winner. Alaba was close to scoring from a free-kick but Halldorsson tipped the ball over.
But despite Austria's dominance, they really struggled to fashion clear-cut chances.
And in the final minute of added time, Iceland broke forward with three men as Traustason was able to latch onto a pass to seal all three points, and guarantee second place ahead of Portugal, who finished the group in third.
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