At London City, Kafaji will be teammates with injured national team star Kosovare Asllani.
"It will be great to have some familiar faces around me. Kosse (Asllani) is a very caring person, so it will make it much easier for me to settle into my new environment," Kafaji said in a statement to the club's website.
The 23-year-old was on loan at Brighton last season.
In Sweden, Kafaji broke through at AIK in 2019 before moving to Häcken in 2022.
Kafaji has scored three goals in 18 senior internationals for Sweden and was available to play in both World Cup qualifying matches against Denmark and Italy in June.
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