Iceland's Meteorological Institute raised its alert over the nation's largest volcano to red on Friday after the Bardarbunga began erupting overnight.
A ban on air traffic around the country's largest volcanic system was also put in place. A previous ban on air traffic around the volcano was lifted on August 24.
"A volcanic eruption started... just after midnight," said the civil protection office in a statement.
"No volcanic ash has been detected by the radar system at the moment. The earthquake caused by the eruption is small, indicating an... eruption without significant explosive activity."
Scientists were in the area examining the explosion, the office added.
A major explosion at the Bardarbunga volcano, located under Europe's largest glacier, could signal a replay of the global travel chaos triggered when another Icelandic peak blew four years ago, creating a massive ash cloud across Europe.
A red alert level was initially put in place on August 23, which led to the closure of airspace in the affected area, although all airports in the country remained opened. This alert was lifted the following day.