The largest battle in the history of Iceland is Örlyggstaðabardagi, which took place in 1238 in Northwestern Iceland between Sturlungar and Ásberningar/Haukdælir during Sturlungaöld. It is estimated that three thousand people fought there.
In spite of the low casualties during the battle, the Sturlungar were decisively defeated(although they later made a huge comeback with Þórður kakali) since they lost a lot of their family in the battle and in the executions after it.
Most of the battles that have ever happened in Iceland happened during Sturlungaöld, a period of civil war from (1208-1262/64). A handful happened when catholics tried to resist the Reformation but they weren't even close to the same scale.