Blaer Bjarkardottir, 15, has been told she is unable to officially use her name because it does not appear on the country's Personal Names Register, according to Sky News.
The baptising priest initially allowed the name by mistake.
Made up of 1,712 male and 1,853 female names, the register is said to prevent children being given embarrassing names.
Parents must apply to a committee in order to use a name that does not appear on the list. However, the committee denied Blaer's mother permission to use the name 'Blaer'.
As a result, the teen and her mother will take the matter to court.
According to her passport and other documents, Blaer is currently known as "Stulka", which means "girl".
Germany and Denmark are other countries which restrict parents to a set list of names.
> Man sick of cold calls, changes name
> Man changes name to Tyrannosaurus Rex