The origin of the municipalities can be traced back to the commonwealth period in the 10th century when rural communities were organized into communes (hreppar [r̥ɛhpar̥]) with the main purpose of providing help for the poorest individuals in society.

When urbanization began in Iceland during the 18th and 19th centuries, several independent townships (kaupstaðir [ˈkʰœypˌstaːðɪr̥]) were created.

The trend in recent years has been to transfer more functions and power from the state to the municipalities.

The government encourages municipalities to merge but has taken a different approach to the issue than governments in other Nordic countries where forced amalgamation is regularly carried out (such as the municipal reform in Denmark that took effect in 2007).

The sizes of these councils vary from five members in the smallest municipalities to fifteen in the largest one.