In 1937 the social democrats suffered another split, and the splinter group unified itself with the communists forming the Socialist Party (Sósíalistaflokkurinn).

On 4 April 1956, the Socialist Party created an electoral alliance with yet another left-wing split of the Social Democratic Party led by Hannibal Valdimarsson, thus forming the People's Alliance with Hannibal as its chairman.

In 1963, National Preservation Party (Þjóðvarnarflokkurinn) contributed people to the joint electoral alliance, resulting in Gils Guðmundsson, a former member of parliament (1953–1956) for Þjóðvarnarflokkurinn gaining a seat in the parliament, which he held until 1979.

In the mid-1960s, the U.S. States Department estimated the party membership to be approximately 1,000 (1% of the working age population of Iceland).

[9] In 1998, it joined forces with the Social Democrat Party, the Women's Alliance (Samtök um kvennalista) and the National Awakening (Þjóðvaki) in forming the Social Democratic Alliance (Samfylkingin), a broad centre-left party.