Oddsson's political career began in 1974 when he became a member of the Reykjavik City Council. In 1976 he became office manager of the Reykjavik Health Insurance Fund and in 1978 he was promoted to managing director. He became a member of the Executive Committee of the Reykjavik City Council in 1980 and in 1982 he became chairman after being elected city mayor of Reykjavik. He has also served on the boards or committees of numerous other organizations.
His affiliation with the Independence Party (IP) dates back to his college days. From 1973 to 1975 he served on the Board of Directors of the Independence Party Youth Federation. In 1979 he became a member of the Executive Committee of the Independence Party. In 1989 he was elected to the position of vice chairman of the Independence Party, and in March 1991, he was elected chairman.
Oddsson's appointment as prime minister came on the heels of his first election to the Althing. He was officially sworn in as prime minister on 30 April 1991 in a coalition government with the left. Oddsson held onto the prime ministership in a center-right coalition in the 1995 election; this center-right coalition continued to hold power after the May 1999 election when Oddsson's Independence Party increased its share of the popular vote from 37.1% to 40.7%. The coalition partner, the centrist Progressive Party, fared worse in the 1999 elections when its share of the popular vote fell from 23.3% to 18.4%. The parties of the opposition left, which ran a single platform in the election, gained only 26.8% of the vote. Oddsson's electoral success is attributed to his economic record. The country has had nearly five years of 5% GDP growth, continued low inflation, and an enviable unemployment rate of just 2.5%. The government budget is in surplus, and public debt is falling. In 2001, the inflation rate was estimated at 5%.