We present a new, diatom-based sea-level reconstruction for Iceland spanning the last similar to 500 years, and investigate the possible mechanisms driving the sea-level changes. A sea-level reconstruction from near the Icelandic low pressure system is important as it can improve understanding of ocean atmosphere forcing on North Atlantic sea-level variability over multi-decadal to centennial timescales. Our reconstruction is from Vioarholmi salt marsh in Snafellsnes in western Iceland, a site from where we previously obtained a 2000-yr record based upon less precise sea-level indicators (salt-marsh foraminifera). The 20th century part of our record is corroborated by tide-gauge data from Reykjavik. Overall, the new reconstruction shows ca 0.6 m rise of relative sea level during the last four centuries, of which ca 0.2 m occurred during the 20th century. Low-amplitude and high-frequency sea-level variability is superimposed on the pre-industrial long-term rising trend of 0.65 m per 1000 years. Most of the relative sea-level rise occurred in three distinct periods: AD 1620-1650, AD 1780-1850 and AD 1950-2000, with maximum rates of similar to 3 +/- 2 mm/yr during the latter two of these periods. Maximum rates were achieved at the end of large shifts (from negative to positive) of the winter North Atlantic Oscillation (NAO) Index as reconstructed from proxy data. Instrumental data demonstrate that a strong and sustained positive NAO (a deep Icelandic Low) generates setup on the west coast of Iceland resulting in rising sea levels. There is no strong evidence that the periods of rapid sea-level rise were caused by ocean mass changes, glacial isostatic adjustment or regional steric change. We suggest that wind forcing plays an important role in causing regional-scale coastal sea-level variability in the North Atlantic, not only on (multi-)annual timescales, but also on multi-decadal to centennial timescales.