The 42-year-old is set to join up with former Portsmouth teammate Hermann Hreidarsson in Scandinavia after his latest stint in the English game ended last month
The 42-year-old, who has enjoyed spells at Liverpool, Aston Villa and Portsmouth in the past, ended his stint with the League One side by mutual consent last month.
And James looks set to reunite with former team-mate Hermann Hreidarsson, who now manages the Scandinavian club, taking on a player-coach role in the process.
"I am going to sign for #ibv in Iceland today," James wrote on his Twitter account. "My role is as player/coach, alongside Herman. We are both very excited about the journey ahead."
James also explained that he is looking to raise funds for cash-strapped Portsmouth, with one of his first games for his new employers set to be in a charity match against them at Fratton Park.
He added: "I am also looking forward to playing for £ibv in the match at Fratton Park, 16th April. Lets hope the club is sorted, sharpish!"