Iceland became the first European country to sign a free trade agreement with China on Monday, as Beijing looks to gain a foothold in the strategic Arctic region.

The deal is expected to expand trade between the world's second-largest economy and the north Atlantic state, which suffered an economic meltdown in 2008.

The agreement was signed during a visit to Beijing by Icelandic Prime Minister Johanna Sigurdardottir, and follows six years of talks between Reykjavik and Beijing.

"This is a major event in China-Iceland relations," Chinese Premier Li Keqiang said. "It also signals the deepening of our relationship, especially our economic relationship, which has been lifted to a new height."

A proposal by a Chinese property tycoon to buy 300 square kilometres (115 square miles) of land in Iceland became embroiled in controversy and was blocked by Reykjavik in 2011.

China has said it would like to play a larger role in the Arctic.

It has applied for permanent observer status on the Arctic Council, an eight-member body including Iceland that meets to discuss matters concerning the area.