The commercial - made in collaboration with environmental charity Greenpeace - highlights the destruction caused by the palm oil industry.
The animated advert features a young orangutan who tells a small girl about his habitat being taken away and his mother being killed because of our voracious appetite for palm oil. It is dedicated to 'the 25 orangutans we lose every day'.
Ditching palm oil
The ad follows an announcement by Iceland earlier this year that it would be ditching all palm oil from own-brand products on environmental and animal welfare grounds.
Greenpeace brought these impacts to the attention of Iceland, helping to spark the ban, leading the retailer's Managing Director Richard Walker to say there's 'no such thing' as sustainable palm oil.
He told major food outlet The Grocer: "The journey has shown me that, currently, no major supermarket or food manufacturer can substantiate any claim that the palm oil they use is truly sustainable, as the damage being caused to the global environment and communities in Southeast Asia is just too extensive."
The advert was banned for being too political
Sustainable palm oil
Palm oil is a deeply contentious issue, and while Walker believes it can never be sustainable, others disagree. Dr Jake Bicknell and Dr Matthew Struebig, from the Durrell Institute of Conservation and Biology [DICE] within the School of Anthropology and Conservation at the University of Kent, are currently working with palm oil certification bodies and companies to improve the way in which palm oil cultivation affects the environment.
They say: "This involves demonstrating the advantages of connecting high-quality rainforest patches in oil palm plantations to allow wildlife to move freely. As certification of palm oil becomes more widespread, with it will come improved prospects for wildlife.
"Therefore, Iceland's move to ban palm oil products, rather than work with the industry to seek sustainably sourced solutions, could be viewed as a step backwards.
"Environmentally conscious consumers should demand palm oil from certified sources, but avoiding it altogether runs the risk of putting pressure on other crops that are equally to blame for the world’s environmental problems."
Aside from these disputes around the sustainability of palm oil, the advertising watchdog banned the advert saying it breaks rules laid down by the 2003 Communications Act around political advertising.
"Clearcast and the broadcasters have to date been unable to clear this Iceland ad because we concerned that it doesn't comply with the political rules of the BCAP code," the watchdog said in a statement.
"The creative submitted to us is linked to another organization who have not yet been able to demonstrate compliance in this area."
"This was a film that Greenpeace made with a voiceover by Emma Thompson," Iceland's founder Malcolm Walker said in a statement.
"We got permission to use it and take off the Greenpeace logo and use it as the Iceland Christmas ad.
"It would have blown the John Lewis ad out of the window. It was so emotional."