The left-sided midfielder, 21, capped once by Iceland, joined us from Icelandic team FH Hafnarfjordur in January 2005. He is a regular in our table-topping reserve team.
Sporting Director Damien Comolli said: "This is a good move for Emil. It will give him the chance to play first-team football and we are pleased he will get that opportunity."
Emil Hallfredsson has joined top Swedish side Malmo on a year's loan arrangement running until December 2006.