Loiseleuria procumbens; the trailing azalea is a heather dwarf-shrub which can be found on hill sides and hill tops. Apparently it is very resistant to wind exposure. The term trailing is somewhat confusing because it's stems are ascending. However the plant rarely exceeds 10 cm in hight and forms mats. It is rather common both in highlands and lowlands.
It is a member of the heath family (Ericaceae). The Icelandic name of this species is Sauðamergur.