Hallgrimsson to take over Qatar's Al-Arabi
His appointment was confirmed in a video message on social media, hashtagged #WelcomeHeimir.
A press conference to unveil the 51-year-old officially is expected to take place on Tuesday.
It will be Hallgrimsson's first job since standing down as Iceland's national team coach following the Russia World Cup earlier this year.
His time with Iceland saw the country achieve unparalleled success, qualifying for its first ever major tournament, the 2016 Euros in France, when Hallgrimsson was joint manager alongside Lars Lagerback.
It was during that tournament, Iceland famously beat England 2-1 in the knockout stage.
As sole manager, he guided Iceland to this year's World Cup, their first ever global tournament.
However, Iceland failed to win a single game and were knocked out at the group stage.
As part of the preparation for the World Cup, Hallgrimsson took his Iceland side to play a friendly in Qatar in November 2017.
Al Arabi currently stand mid-table in the 12-team Qatar Stars League at the halfway stage, 15 points behind leader Al-Duhail.