The small molecular cloud Lynds 1634 contains at least three outflow sources. We found one of these, IRS 7, to be variable with a period of 37.14 +/- 0.04 days and an amplitude of approximately 2 mag in the Ks band. The light curve consists of a quiescent phase with little or no variation, and a rapid outburst phase. During the outburst phase, the rapid brightness variation generates light echoes that propagate into the surrounding molecular cloud, allowing a measurement of the distance to IRS 7 of 404 pc +/- 35 pc. We observed only a marginally significant change in the H - K color during the outburst phase. The K-band spectrum of IRS 7 shows CO bandhead emission but its equivalent width does not change significantly with the phase of the light curve. The H_2 1-0 S(1) line emission does not follow the variability of the continuum flux. We also used the imaging data for a proper motion study of the outflows originating from the IRS 7 and the FIR source IRAS 05173-0555, and confirm that these are indeed distinct outflows.