In the present investigation, we report the effect of ytterbium (Yb) impurity band on charge transport and thermoelectric properties in PbTe1-xIx. The temperature dependent interaction of Yb-states with charge carriers and host energy-bands is found to significantly affect the electrical transport parameters in all the investigated samples. Our result indicates that, in the presence of Yb band, the carrier concentration did not increase as effectively as it was found in pristine PbTe with increasing iodine content. An anomalous switching of positive thermopower into negative was found in the samples with lower iodine content. Such phenomena were explained by the redistribution of charge carriers within the different available bands and promotion of vacancy like defects via substitutional impurity. Due to the optimum doping levels, the sample with the highest iodine content showed a decent figure of merit with a peak value of 0.69 at 575 K in the sample with x = 0.007.