In this paper we estimate the local ( z < 0.22 ) X-ray luminosity function of ‘ normal ’ galaxies derived from the XMM-Newton Needles in the Haystack Survey . This is an on-going project that aims to identify X-ray selected ‘ normal ’ galaxies ( i.e . non-AGN dominated ) in the local Universe . We are using a total of 70 XMM-Newton fields covering an area of 11 deg ^ { 2 } which overlap with the Sloan Digital Sky Survey Data Release-2 . ‘ Normal ’ galaxies are selected on the basis of their resolved optical light profile , their low X-ray–to–optical flux ratio ( \log ( f _ { x } / f _ { o } ) < -2 ) and soft X-ray colours . We find a total of 28 candidate ‘ normal ’ galaxies to the 0.5-8 keV band flux limit of \approx 2 \times 10 ^ { -15 } erg~ { } cm ^ { -2 } ~ { } s ^ { -1 } . Optical spectra are available for most sources in our sample ( 82 per cent ) . These provide additional evidence that our sources are bona-fide ’ normal ’ galaxies with X-ray emission coming from diffuse hot gas emission and/or X-ray binaries rather than a supermassive black hole . Sixteen of our galaxies have narrow emission lines or a late-type Spectral Energy Distribution ( SED ) while the remaining 12 present only absorption lines or an early-type SED . Combining our XMM-Newton sample with 18 local ( z < 0.22 ) galaxies from the Chandra Deep Field North and South surveys , we construct the local X-ray luminosity function of ‘ normal ’ galaxies . This can be represented with a Schechter form with a break at L _ { \star } \approx 3 ^ { +1.4 } _ { -1.0 } \times 10 ^ { 41 } erg s ^ { -1 } and a slope of \alpha \approx 1.78 \pm 0.12 . Using this luminosity function and assuming pure luminosity evolution of the form \propto ( 1 + z ) ^ { 3.3 } we estimate a contribution to the X-ray background from ‘ normal ’ galaxies of \sim 10-20 per cent ( 0.5-8 keV ) . Finally , we derive , for the first time , the luminosity functions for early and late type systems separately .