We use high-resolution simulations to analyze fluid flow, pore pressure, and fault permeability evolution in the seismically active Tjörnes Fracture Zone (TFZ), a major transform fault zone in the North of Iceland. Our results show that the TFZ is characterized by four distinct areas where pore pressures are above hydrostatic, consistent with geophysical observations. Basement and faults, which are assumed to have low permeabilities, often display pore pressures close to lithostatic. Fault permeabilities are allowed to vary freely as a function of the effective fault normal stress. They hence inflate periodically to release excess pore pressure in a few minutes. This is accompanied by an increase in permeability of over seven orders of magnitude and causes short-lived fluid fluxes of more than 0.01 m s-1. After pore pressures have dissipated, fault permeabilities decay back to their original values in 2 to 3 years as the effective fault normal stress increases. This behavior is consistent with a toggle switch mechanism and could have two important implications for fluid flow in seismically and hydrothermally active oceanic crust. First, the rapid changes in fault permeability and pore pressure provide an explanation for distinct cyclical geochemical changes observed on a similar timescale in thermal waters near the town of Húsavik in the TFZ before and after a magnitude 5.8 Mw earthquake. Second, our results provide another line of evidence in the growing number of observations that crustal permeabilities are constantly evolving and geological processes in hydrothermal systems can be dominated by short-lived and extreme flow events.