However, disruption in the supply chain due to Russia’s invasion of Ukraine has made sunflower oil “totally unobtainable”, Iceland’s managing director Richard Walker wrote in a blog.
The supermarket said the change to products is a "temporary" measure.
Walker said that the frozen food retailer’s decision was made “with regret”, but the only other alternative would be to “clear our freezers and shelves of a wide range of staples”.
It comes just four years after Iceland made a TV advert with Greenpeace to promote its removal of the controversial ingredient in its own-label products.
Now from June, a “limited range” of products that contain palm oil in the list of ingredients will appear in Iceland stores.
Walker said that while the retailer has agreed to use certified sustainable palm oil to replace sunflower oil, he has not “changed my mind about palm oil” and insisted it was a “strictly temporary move”.
Around 70% of global sunflower oil supplies come from Russia and Ukraine, but the war has placed major pressure on the region that supplies it.
Price increases in fuel, wheat, fish andf fertiliser have also occurred due to the conflict.
In the blog, Walker wrote: "In the long term, we remain very much committed to keeping the Iceland own-label range free of palm oil ingredients and will revert to using sunflower oil as soon as the supply situation stabilises and it becomes practical to do so."