Free speech campaigners, activists and academics are among the 40 individuals and groups from some 20 countries who've signed an open letter urging Icelandic Interior Minister Ogmundur Jonasson to drop the proposal.
The letter was coordinated and published online Thursday by the International Modern Media Institute, an Icelandic civil society think tank headed by lawmaker and ex-Wikileaks spokeswoman Birgitta Jonsdottir.
It claims the proposal has "already jeopardized longstanding efforts to prevent or abolish censorship in totalitarian regimes and protect civil liberties and human rights worldwide."
"Iceland is a liberal democratic state which should not serve as a role model for Internet censorship," the letter said.
Restricting people's access to information online in order to shape their views is as much censorship as the repression of free speech, it said, drawing a comparison with the governments of Iran, North Korea and China.
The technology used by Iceland to restrict access to online pornography would be no different from that used by totalitarian regimes, the letter said, and would require automatic surveillance of all telecommunications.
The letter also warns that blocking pornographic content online "may create demand for an underground porn industry, unregulated and most certainly affiliated with other illegal activities," such as has been seen in efforts to ban alcohol or illegal drugs.
Iceland's laws already ban the making and distribution of pornography but were written before the advent of the Internet, which has made access much easier.
Halla Gunnarsdottir, an adviser to the interior minister, told the UK's Guardian newspaper that the government's goal is not censoring sex but restricting access to violent pornography.
Research has shown that children in Iceland are on average 11 years old when they're first exposed to pornography, she said, with some traumatized by it and others later seeking to re-enact violent acts they have seen.
The government's plans include tightening the current legal definition of pornography to differentiate between sex and violent or degrading material, she told the newspaper.
But the activists' letter argues that "the Internet is not the source of violence, it is merely a medium by which violence is made apparent."
If Iceland's government wants to protect children from learning about sex on the Internet, it should focus on improving sex education in homes and schools, it said.
Among the U.S. signatories to the letter are the Electronic Frontier Foundation, the Center for Civic Media at the Massachusetts Institute of Technology and the Freedom of the Press Foundation.
Other signatories hail from as far afield as Egypt, Jordan, Guatemala, India, Germany and the United Kingdom.
Iceland, a nation of nearly 320,000 people, is better known for its efforts to promote free speech and transparency than for any censorship.
Its parliament in 2010 backed a proposal drafted by the International Modern Media Institute for the adoption of new laws to strengthen freedom of expression.