Interfacial magnetoelectric coupling is a viable path to achieve electrical writing of magnetic information in spintronic devices. For the prototypical Fe/BaTiO₃ system, only tiny changes of the interfacial Fe magnetic moment upon reversal of the BaTiO₃ dielectric polarization have been predicted so far. Here, by using X-ray magnetic circular dichroism in combination with high-resolution electron microscopy and first principles calculations, we report on an undisclosed physical mechanism for interfacial magnetoelectric coupling in the Fe/BaTiO₃ system. At this interface, an ultrathin oxidized iron layer exists, whose magnetization can be electrically and reversibly switched on and off at room temperature by reversing the BaTiO₃ polarization. The suppression/recovery of interfacial ferromagnetism results from the asymmetric effect that ionic displacements in BaTiO₃ produces on the exchange coupling constants in the interfacial-oxidized Fe layer. The observed giant magnetoelectric response holds potential for optimizing interfacial magnetoelectric coupling in view of efficient, low-power spintronic devices.