The 25-year-old, who only joined in the summer after he was released by Rangers, has failed to settle in Norfolk.
Smith has made seven appearances for City this season but has not featured since November due to a hip injury.
Lambert told the club's official website: "The situation with Steven is he's still getting over his injury and doing really fine. But he's finding it hard to settle here so I may have to look to move him on or send him out on loan."
Meanwhile, deputy goalkeeper Declan Rudd has suffered a broken jaw in a behind-closed doors reserve match and will be out for a number of weeks, meaning 18-year-old Jed Steer will be drafted into the senior squad for Saturday's game against Cardiff.
Lambert added: "Declan's out so Jed will come into the equation. He's (Rudd's) broken his jaw, which is not nice, and he'll be out for a number of weeks."
Source: PA
Source: PA