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I heart Reykjavík: There's not a big selection of yarn here but if you are in Kringlan any way and you want to pick up a skein or two - this is the place to go.
Vintage and Thrift Store · Miðborg · 6 tips and reviews
I heart Reykjavík: You can get some very cheap knitting needles at Tiger if you need one ASAP plus they sell some cheap yarn.And it's open till 20:00 - bonus!