Gunnlaugsson made 59 appearances for the Lilywhites in a two-season stay and won 27 caps for Iceland.
He is now co-owner of a football agency and 10 of the players the company represents are in the Iceland squad at the Euros.
England and Iceland meet in the last 16 of the tournament having finished runners-up in their respective groups.
Gunnlaugsson told the Evening Post: “I feel we have a chance in this game.
“Iceland are a team who work hard and have some decent players.
“Obviously, England start as favourites and have some fantastic players in the squad.
“But if they don’t score in say the first 60 minutes, they might panic a little bit.
“Scoring has been a bit of a problem for them, they only got the one against Russia and then it took the substitutes in the Wales game to change it.
“They could not break Slovakia down, so if Iceland keep a good shape, who knows what might happen?
“England don’t seem to have found their best XI yet which is a bit of a surprise at this stage.
“I would expect England to come at Iceland quite early and try to score as quickly as possible.
“If England score first, it will be more comfortable for them.
“The longer Iceland keep them quiet, then anything is possible.”
Gunnlaugsson, now 43, was in France for all three of Iceland’s group matches against Portugal, Hungary and Austria.
He will watch tonight’s game back home though.
Said Gunnlaugsson: “I did have a ticket for this game but I needed to get home because I have a young daughter and could not be away for too long.
“My company has 10 players in the Iceland squad and it has been great to see them play.
“Jon Bodvarsson, who scored the first goal against Austria, is one of our players.
“A lot of the current squad, the core of the team, have been playing together since they were 15 or 16.
“Alongside them are slightly older players who know how to play the game and don’t try to do anything silly.
“We have got a Swedish coach Lars Lagerback who has brought a 4-4-2 and a zonal marking system.
“When the tournament started, I knew we wouldn’t get beat easily but I did think we would struggle to win.
“So far we’ve had two draws and a win which is very good for a first tournament.”
Gunnlaugsson joined PNE from Reykjavick in 1999, David Moyes signing him.
He was in the 1999/2000 Second Division title-winning squad and helped North End reach the play-offs in 2001.
“I met up with David Moyes in Iceland a few weeks ago,” said Gunnlaugsson.
“Last year I also saw Mick Rathbone, so it has been nice to see some of the old Preston gang.”