The discount supermarket chain planned to use a Greenpeace-made animated short film, about the destruction of the rainforest caused by palm oil production, and its devastating impact on the critically endangered orangutan.
Earlier this year, Iceland became the first major United Kingdom supermarket to pledge to remove palm oil from all its own-brand foods.
Iceland hoped that the advert would improve shoppers' understanding of rainforest destruction for palm oil production; the retailer it was going to commit more than half a million pounds of media spend to getting it in front of consumers.
Palm oil is a highly controversial ingredient, with green groups accusing suppliers of the widely used commodity of fueling deforestation in South East Asia, leading to increased greenhouse gas emissions and habitat loss.
Discount supermarket chain Iceland is facing off with United Kingdom ads regulator Clearcast over a Christmas ad campaign which has been banned from TV for being too political.
Iceland will still be placing TV ads, but only 10-second clips that will highlight palm oil-free products.
In a statement Clearcast suggested the advert does not clear this hurdle.
Iceland said it had spent £500,000 on putting its campaign together and insisted it had booked a number of prime-time TV slots with the full intention of having it cleared to air over Christmas. "The creative submitted to us is linked to another organisation who have not yet been able to demonstrate compliance in this area". "The culmination of our palm oil project is offering our customers the choice of an orangutan-friendly Christmas, and we wanted to reflect this in our advertising".
Iceland founder Malcolm Walker said of the ad: "We got permission to use it and take off the Greenpeace logo and use it as the Iceland Christmas ad". "Our commitment to help protect the home of orangutans remains extremely close to our hearts".