The picture, posted on Instagram by friend Sioned Taylor on Monday, shows the 35-year-old standing alongside Ms Taylor and her cousin Marcus Essabri.
The two women were also pictured on a “European holiday” in Spain in June.
Mr Essabri said the pair had an “emotional reunion” in Iceland in a statement released by the Free Latifa campaign.
He added: “I feel blessed that I got to spend time with her. It was reassuring to see her so happy, well and focused on her plans.”
The campaign also issued a statement confirming the princess had met her cousin and that it would be disbanding.
“Following the meeting between Marcus and Latifa in Iceland it has been decided that the most appropriate step at this time is to close the Free Latifa campaign,” it said.
“The primary purpose of the FreeLatifa campaign was to see Latifa free leading the life she chooses for herself.
“We have clearly gone a long way towards achieving that goal over the last three years, with bodies such as the United Nations now monitoring the current and future wellbeing of Latifa.”
Earlier this year, the BBC’s Panorama released footage secretly filmed by the princess, in which she described herself as being “held hostage” in a villa that “has been converted into a jail”.
There was an international outcry after the footage was released, with a United Nations panel calling on Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum to provide information on his daughter, including “proof of life”.
It came after the princess attempted to flee the United Arab Emirates (UAE) on a yacht in 2018.
In her escape attempt, the princess had left the UAE for Oman, where she boarded a boat and sailed towards India, with the ultimate goal of flying to America and claiming asylum.
The boat was detained off the coast of India by Emirati commandos, and she was returned to Dubai on a private jet, where she has remained largely out of the public eye until recently.
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