Iceland 1-3 Germany Germany are now only one victory away from securing a play-off place in Group 5.
Needing three points to overhaul Group 5 leaders Lithuania, the unbeaten Germans were dominant from the off in windy conditions, although they were fortunate on 20 minutes when Alexander Madlung cleared Gunnar Thorvaldsson's header off the line.
In the 25th minute, however, Germany were ahead as Thorben Marx set up Benjamin Auer to score from close range. Just before half-time, though, the home side equalised through Sigmundur Kristjansson's free-kick from 18 metres out.
Germany secure win
After the second half, Germany re-established control and after Markus Feulner was fouled on 64 minutes in the Icelandic box, Auer converted the penalty. Mike Hanke scored on the turn seven minutes later to confirm the win.
A point clear of Lithuania with a game in hand, Germany can claim a play-off berth if they win at home to Scotland on Tuesday or when Iceland - still without a point - visit on 10 October.