We have performed low-temperature (T=15K) spin-polarized scanning tunneling spectroscopy of nanoscale Fe islands with a height of two atomic layers, grown on a stepped W(110) surface and surrounded by a closed monolayer (ML) Fe. These islands are single domain particles up to a coverage of 1.5 pseudomorphic ML and keep an antiferromagnetic out-of-plane ordering far beyond the onset of their coalescence. For small islands we observe a reorientation to in-plane magnetization between 2 and 3 nm island width due to exchange coupling to the in-plane magnetized ML.