Havent seen Angels of the universe yet. it is written by Einar Már Guðmundsson and based on his brother who suffered from schizophrenia. The mark left on popular culture by this book is still felt today especially since mental health is more talked about now than ever before. In 2000 a movie was made based on the book and while it stars legendary Icelandic actor Ingvar E. Sigurðsson it also features Baltasar Kormákur who is now a very successful director.

Laxness has already been mentioned but i want to recommend my favorite book of his: Salka Valka. Written in the 1920's it features a unique look into the struggles of the icelandic proletariat in a fictional town called Óseyri.