Iceland's longest serving president will not run for a sixth term in June, the president's office said, reversing a decision after being caught up in political upheaval caused by the Panama Papers scandal.

Olafur Ragnar Grimsson has been president since 1996. He had received criticism after his wife's family was linked to holdings in tax havens made public in the Panama papers. He has denied any wrongdoing.

Grimsson has exerted his right to demand popular votes on key issues, introducing political power to an office that had traditionally been seen as largely ceremonial.

His decision comes after Prime Minister Sigmundur David Gunnlaugsson decided to step down in April when leaked documents from a Panamanian law firm showed his wife owned an offshore company that held debt from failed Icelandic banks.

As president, Grimsson demanded referendums on deals made by the government to pay Britain and the Netherlands for their bailouts of customers of private Icelandic banks. In both cases, voters rejected the deals.

Grimsson originally said he would not seek reelection but then surprised commentators in April with a decision to run in the wake of the resignation of Gunnlaugsson, saying the country needed stability.