REYKJAVIK, Iceland (AP) _ Two candidates vied for the presidency of Iceland in today's election and opinion polls predicted a landslide victory for incumbent Vigdis Finnbogadottir.

Some of the 170,000 eligible voters on this sparsely populated island cast ballots shortly after polls opened at 9 a.m. (5 a.m. EDT). Polls close at 11 p.m. (7 p.m. EDT), with results expected one hour later.

The presidency is largely ceremonial. Real power rests with the prime minister, Thorsteinn Palsson.

The challenger, 46-year-old housewife Sigrun Thorsteinsdottir, captured eve-of-election headlines when her Friday afternoon rally in the Icelandic capital was disrupted by a bomb scare.

Police said they received an anonymous telephone call claiming that a bomb had been planted in Laekjartorg, the main square in downtown Reykjavik, where about 100 supporters and spectators had gathered. Police searched the square but no bomb was found.

Recent opinion polls suggest Mrs. Thorsteinsdottir will secure less than 3 percent of the vote.

Ms. Finnbogadottir, 57, is campaigning for a third four-year term. She defeated three male candidates in 1980 to become the North Atlantic island's fourth president and the world's first female state president. In 1984, she won automatic re-election when no rivals registered.

Today's election marks the first time an incumbent president has faced a re-election challenge since this nation of 243,000 became a republic in 1944.

Mrs. Thorsteinsdottir is a member of the anti-establishment Humanist Party, which has so far failed to win a seat in the 63-seat Althing, or parliament.

She has challenged Ms. Finnbogadottir's role as a figurehead president with traditionally limited powers, arguing that the constitution apportions far greater power on the presidency than commonly supposed.

But constitutional experts say that although the president has power to introduce bills to the legislature, form governments and subject proposed legislation to a plebiscite, the constitution makes clear that the prime minister and the Cabinet are solely responsible for all government action.

All the major political party leaders have expressed support for the status quo and some have ventured to suggest that Mrs.Thorsteinsdottir's campaign is based on ignorance of the constitution.

Icelandic women have in recent years begun to carve out a larger slice of political power. The left-wing Women's Alliance - which made history in 1983 when it became the first feminist movement in the world to win parliamentary seats - doubled its tally to six seats in last year's general election.

The Reykjavik daily newspaper Morgunbladid recently published a poll showing the opposition Women's Alliance equal with the Independence Party, with each enjoying the support of about 30 percent of the electorate.

The Independence Party is the country's largest political party and a dominant force in the three-party coalition government,