The internet watchdog, which is an EU-funded non-governmental body, banned the Wikipedia entry for 'Virgin Killer', the 1976 album by German heavy metal band the Scorpions, after it was reported through its online reporting system on December 4.
Following representations from Wikipedia, the IWF said that it had decided to reverse its decision.
It said in a statement: "The image in question is potentially in breach of the Protection of Children Act 1978.
"However the IWF Board has today [December 9 2008] considered these findings and the contextual issues involved in this specific case and, in light of the length of time the image has existed and its wide availability, the decision has been taken to remove this webpage from our list."
The IWF said that its objective was to minimise the availability of indecent images of children on the internet but admitted "on this occasion our efforts have had the opposite effect".
It also said that it regretted the unintended consequences for Wikipedia and its users. As a result of the block on the page, UK users were prevented from viewing the page and also from editing any articles on Wikipedia.
The album image, of a completely nude young girl apart from a cracked glass effect that conceals her genital area, has been around for more than 30 years and has never previously been linked to child pornography.
The IWF said that the content was considered to be a potentially illegal indecent image of a child under the age of 18, hosted outside the UK.
The webpage was added to the IWF list, which is provided to ISPs and other companies in the online sector.