“Signs are taken for wonders,” TS Eliot’s speaker observes soberly in Gerontion. But what is the difference between a wonder and a sign – and which do we prefer? Such questions flow through Karl Ove Knausgård’s Morning Star series of novels, an ongoing effort to open fiction up into a kind of vast Book of Revelation in which visions of red deer, landlocked crabs and devils stream across a rural Norway populated by Knausgård’s familiar hotel bars and supermarkets.

In the first volume, 2021’s The Morning Star, a disparate group of Knausgårdian characters – a jaded academic with a manic-depressive wife, a doubting vicar with a jealous husband – found their lives illuminated and sent off kilter by a new, preternaturally bright star in the sky. The vicar buried a man she’d seen alive after his death; two characters shared a vision of a ghost. This was followed by The Wolves of Eternity, a tighter story where a funeral director with an unexpected zest for life meets his half-sister, watched over by that same potentially diabolical star, amid a series of disquisitions on resurrection. Both novels had flashes of brilliance, but were unable to find a satisfying structure to blend the everyday with the supernatural and philosophical.

The Third Realm is quite different, even though the characters come from the earlier novels. With breathtaking confidence, Knausgård mirrors The Morning Star, giving us other, richer perspectives on the material. The book opens and closes with Tove, the manic-depressive wife of the academic Arne. And her mix of despair and insight, humour and visionary brilliance turns out to be what these novels need most.

“Hell isn’t the psychosis. Hell is leaving the psychosis,” she observes, awakening from the manic episode she entered in The Morning Star. Scenes from that book are then enacted from her perspective. The result is an exemplary masterclass in what fiction can offer: the expansion of readerly sympathies, bringing a sense that there are potentially endless perspectives available.

Into this is thrown the possibility that there really are incarnated devils wandering the land. Indeed, three members of one of Norway’s notorious black-metal bands are murdered in a lurid act that doesn’t seem humanly possible. Throughout, devils communicate primarily with the already psychotic. There’s a kind of RD Laingian suggestion that psychotics may be more capable of imaginative insight, but also a sense that we could all see like this if we looked differently. By the end, the exhausted policeman with a double life is found earnestly espousing a belief in devils to the vicar.

And the point of it all? Not many readers will come away believing in devils, so what’s gained isn’t new theological insight but something else: a commitment to the possibilities of transcendence within realism. Arguably, this has been Knausgård’s project all along, even as he was describing himself clearing up his dead alcoholic father’s flat in his breakthrough autofictional series My Struggle. But now the transcendent more luridly floods the everyday.

There’s a lot of music here, and in one of the mini-essays written by the characters, a neuroscientist called Jarle muses on whether music offers a revelation of the soul. This becomes more viscerally felt when Valdemar, the lead singer in another black-metal band, or cult, gathers his followers for a secret concert. The narrator here is Line, a strait-laced young woman he’s in the process of seducing, who finds her body quivering in “transports of rapture” as the audience comes together in collective ecstatic movement and tears. The signs of danger proliferate: it’s Valdemar whose notion of a desired “Third Realm” provides the book’s title; he says he’s referencing a medieval third realm of the Holy Spirit, but the Norwegian title Det tredje riket explicitly echoes the Third Reich. Yet the transcendence here is convincingly redemptive, and the book suggests that we should look to these extreme states for reality, or perhaps just that we ignore the soul’s more neglected corners at our peril.

In interviews, Knausgård exhibits a heady mixture of grandiosity and humility, and the two come together here revealingly. The book, with its disquisitions on death and eternity, is extremely grandiose. But it’s also pervaded by the feeling of failure that permeates My Struggle. Knausgård has said that he laboriously follows his characters on to buses and into supermarkets not because he wants to make the mundane interesting, but because he doesn’t know how to fast forward the action. The prose here bears witness to this. Here’s Jarle arriving to test the brain of a patient in a coma. “The taxi slid with a hum through the rain that was already gushing through the gutters, occasionally flooding at the roadsides. The area in front of the hospital was deserted but the car park was almost full.” With his more desperately humdrum passages, Knausgård seems to suggest that his credentials for interrogating the nature of being and eternity are not that he knows everything but that he knows nothing. He’s engaged in a kind of cosmic yet earthly experiment, as Jarle himself is. If he can record the ordinary lives of enough people faced with the extraordinary presence of the star, perhaps he will, as if inadvertently, reveal something about the nature of our limited present and its relationship to a more credulous and therefore possibly more enlightened past.

The book read to me as the final part in a trilogy, but it turns out there are at least two more to come. Thinking it was a finale, I found it magisterial. There is both sufficient resolution, brought by the feeling of endlessly proliferating perspectives, and sufficient ambiguity. As a midpoint in a longer work, I find it less promising, though it makes sense that Knausgård wants to undercut any sense of resolution. The story is now at the point where it would be hard to write more without becoming more explicit about the presence of the demonic, which may take it too far into genre fiction and absurdity. But Knausgård seems prepared to be a brilliant failure – that may be part of his genius. And on he will go and on some of us will go with him, because even at his most flawed he has such an electrifyingly capacious sense of what the novel can be.

• Lara Feigel is the author of Look! We Have Come Through!: Living With DH Lawrence (Bloomsbury). The Third Realm by Karl Ove Knausgård, translated by Martin Aitken, is published by Harvill Secker (£25). To support the Guardian and Observer order your copy at guardianbookshop.com. Delivery charges may apply.