The ensuing economic crisis saw the value of Iceland's currency plummet and the government, then head by the Independence Party, agreed to a $10bn rescue package led by the International Monetary Fund (IMF).
The protests pushed the government to resign and the left-wing Social Democrats formed a caretaker government in coalition with the Left-Green party and called the early election.
Unemployment and inflation have spiralled in Iceland, and the IMF has predicted that the economy will shrink by about 10 per cent in 2009 - that would be Iceland's biggest slump since it won full independence from Denmark in 1944.
Polls showed the Social Democrats, led by Johanna Sigurdardottir, the prime minister, winning about 30 per cent of the vote with the Left-Green party expected to get 24.1 to 27.2 per cent.
A result in line with the polls would leave Sigurdardottir as prime minister, although more votes for the Left-Green party could give Steingrimur Sigfusson, its leader, leverage to claim the premiership.
If elected, the two parties will need to bridge their differences over joining the European Union.
The Left-Greens are opposed to joining the bloc, while Sigurdardottir supports joining the EU and adopting the euro.
"EU membership application is a priority issue for the Social Democrats," she said on Friday. "It is necessary to achieve stability."
Like many other voters, Einar Sigurdsson, an internet entrepreneur, told Al Jazeera that he would be voting for the Social Democrats.
"The Social Democrats have the strategy that I like the most - they will go to the European Union. I think by doing that we will send a signal to the world that we will play with the international community," he said.
"We will also then going to be able to change our currency, and our currency is what has been killing us - it is like gambling today with the Icelandic krona, instead of doing business."
Iceland's next government will also face the issues of how to cut budget spending and raise revenues, as well as how to tackle the country's surging unemployment.
A party needs five per cent of the vote to be represented in the 63-seat parliament, the Althingi.
The final results of the election are not due until early on Sunday.