Milan Badelj hit a sweet half-volley for his side early in the second half, and Ivan Perisic struck in a 90th-minute victor for Croatia after Gylfi Sigurdsson had pulled Iceland level from the penalty spot.
A revamped but businesslike Croatia has topped its World Cup Group D as Ivan Perisic's last-gasp goal helped it maintain its ideal record with a 2-1 win that also ended Iceland's qualification hopes. Soccer: World Cup, Argentina vs Croatia, preliminary round, Group D, 2nd match day in the Nizhny Novgorod Stadium.
Sverrir Ingason forced Kalinic to another spectacular save, seconds before his header shaved the top of the bar. Gylfi Sigurdsson levelled with a penalty but Ivan Perisic grabbed a last-gasp victor.
The referee pointed straight to the spot with no VAR required and the Everton midfielder soon stepped up to rifle into the roof of the net and draw Iceland level in the 76th minute.
Regardless of the late drama in the first period, it was Croatia who came out on the front foot in the second period and Badelj might have opened the scoring when he saw his effort from range deflected onto the crossbar with Hannes Thor Halldorsson beaten.
Croatia kept its ideal record at the 2018 FIFA World Cup while sending Iceland home on Tuesday.
Buoyed by the cacophonic "Viking Thunder Clap" from the crowd, Iceland poured forward in search of the goal which would see them through into the knockout stages but it was Croatia who would laugh last, as Ivan Perisic stole in to break Icelandic hearts as the game moved into stoppage time.
Iceland's Gylfi Sigurdsson became the second player to have scored and missed a penalty at the 2018 World Cup, after Portugal's Cristiano Ronaldo.
As a result, the first stanza ended goalless, although Iceland had the slight upper hand.