The new carrier, called PLAY, plans to begin services between Reykjavik and Stansted on 24 June after it was granted an Air Operators Certificate in Iceland.
The airline has been launched by Birgir Jonsson, the former deputy chief executive of WOW air, the budget Icelandic airline that collapsed in March 2019.
PLAY is preparing its first Airbus A321neo and plans a fleet of six aircraft operating to 14 destinations.
Jonsson is also a former chief executive of airline Iceland Express and the former chief of Iceland Post. His management team includes several other WOW Air staff.
He said: “We have the best people who have shown tremendous strength over a period of almost two years. It is a long time which we have used well to prepare the low-cost airline for a turnaround in tourism in Iceland.
“We will offer highly competitive prices on effortless and safe flights, making us an affordable option and a real competitor on the market.”
