The Daily Mirror reports that the former Atomic Kitten singer is being dropped because of repeated controversies and because the ads have been so widely criticised.
The Iceland campaign is built around the slogan: "That's why mums go to Iceland". Katona, a one-time "mother of the year" was seen as an ideal representative for the brand following her success when she won "I'm a Celebrity… Get Me Out of Here" in 2004.
However, Katona has been criticised for smoking and drinking while she is pregnant, and has also been forced to deny claims that she takes class-A drugs. Tabloids recently ran stories about her fighting with her mother-in-law, and she made headlines following an interview on GMTV in which she seemed somewhat worse for wear.
The Iceland campaigns are made by Salford-based Tom Reddy Advertising. Other celebrities to have been roped in to join Katona in campaigns are Jason Donovan, who won "I'm a Celebrity" in 2006, and TV host Coleen Nolan.
Iceland's 'I'm a Celebrity' idents were named turkey of the week by 北京赛车pk10 magazine and the whole campaign made the magazine's list of worst celebrity advertising.
Although the campaigns have research by Marketing magazine has shown that the ads have incredibly high recall.
One spot, where Katona promoted roasting joints that could be cooked from frozen, had the second-highest recall of any ad shown during a yearlong period.
Iceland marketing director Nick Canning told the Mirror: "It is clear we have been hiring different staff including Jason Donovan and Coleen Nolan over Christmas. I'm not sure what contract we will be able to offer."