Magnetic interactions in iron nanoparticles embedded in an ytterbium metallic matrix have been systematically studied using several DC magnetic protocols (zero-field cooling ZFC and field-cooling FC). A transition from a superparamagnetic to a magnetically blocked regime was observed at 4.4 K associated with ultrafine (~1.8 nm3) iron particles. These iron nanoparticles have shown an enhanced effective anisotropy, Keff = 8.1(5) × 105 J m−3, however, no spin canting at their surfaces was observed, as suggested by the absence of exchange bias effect measured under FC protocol. Different magnetization experiments (temperature dependence of the thermo-remnant moment difference, ZFC-FC magnetic aging/memory protocols, Arrott plots) and phenomenological models applied to the magnetization data have shown that the iron nanoparticles have a narrow size distribution. Likewise, our results show that the ultra-fine iron nanoparticles are weakly interacting via the metallic ytterbium matrix by a magnetic exchange mechanism. This magnetic interaction leads the ensemble of iron nanoparticles to a cluster-glass-like state for temperatures below 5 K.