There is already a posted message at forum http://forum.joomla.org/viewtopic.php?f=711&t=801634 about that behavior.
When that setting is on : "remove url language code" the redirect may not work when the following conditions are set:

• SEF is on
• "remove url language code" is on in the plugin languagefilter
• the url of the default language differs from the url of an other language, i.e. www.example.com/de/example1
  www.example.com/en/example2 (associated menu item to /de/example1)

When you are on the English site (language "en"), the above setting removes the url language code to www.example.com/example2
Failure:
When on the site www.example.com/de/example1 and you enter the URL into browser: www.example.com/example2 the link will be build to www.example.com/de/example2 which causes a 404-page.

Solution:
Please change the following line at
plugins/system/languagefilter/languagefilter.php : (line 250)
Code:
// redirect if sef does not exists and language is not the default one
if (!isset(self::$sefs[$sef]) && $lang_code != self::$default_lang)
{

              //LOYTEC patch TK++ 2013-12-11; if path =""; then switch to the next language
              // $sef = isset(self::$lang_codes[$lang_code]) ? self::$lang_codes[$lang_code]->sef : self::$default_sef;
              $sef = (isset(self::$lang_codes[$lang_code]) && empty($path)) ? self::$lang_codes[$lang_code]->sef : self::$default_sef;

Now it works at my site. - only if you enter the naked site with http://www.loytec.com, it switches to your browser's language site; e.g. on a German browser (or cookies are de-DE), it switches to: http://www.loytec.com/de